Walking with the ‘Gators

My Google alerts recently brought me the article about the owners of Shoreline Towers and their quest to deny reality. It seems they don’t want a special assessment to correct defects, so instead of merely voting against the special assessment, the owners are petitioning to remove the board and install new, apparently more owner-friendly, directors.

If this sounds like a broken record, well, yes – it is.

All of us involved in supporting condominiums share the heartache owners suffer when their financial plans are upended. You really can’t believe that your management, lawyers, accountants, contractors – everyone involved, really wants to see you suffer financially? You cannot think for a moment that it is any of our interest to beat you over the head with a million dollar bill, can you?

Yet, you insist that, for some strange reason, we are all out to get you. That we are in some sort of collusion to take your money and give you nothing in return. You blame the advisor for the predicament so the easy answer is get rid of the advisor.

But you have figured out that the condo’s advisors are immune from your direct assault. So you decide to get “better directors” who understand that you, the owners, are in charge. But the problem that you fail to understand is that any director who truly wants to serve the community, is stuck in the same conundrum. The problem exists, the solution is presented, and they are bound by duty to offer the same remedy.

Think about it. The board is comprised of individual directors, none of whom are experts in condominium construction, condominium construction defects, condominium structure wear-and-tear. The directors do not know an eye-bolt from a flange. What they see is the concrete crumbling, siding falling off, spongy windowsills. They get that there is a problem but they don’t see the scope of the damage. What do these effective directors do? They engage experts.

The experts do their job and prepare a report for the board. The report lays out what the condominium is facing and the steps necessary to correct the issues. The effective directors then say, “Thank you expert, we accept your report.” And then the directors go about and move to adopt the experts recommendations and start finding ways to carry out the recommendations.

Part of carrying out the recommendations is to ensure money is available. Guess what? It never is. The board, comprised of individuals, has since the very beginning of your condominium, deliberately underfunded your condominium reserves. How can I say this? Because the reality is there would be no need for special assessments, or additional capital calls if you prefer, if the board had adequately assessed in the past. You are here because of good intentions… after all, boards are given latitude to determine the appropriate funding level for the reserves and less is always better than more. Until it isn’t.

The owners are not denying that the damage needs to be fixed. They deny they are the financially responsible party. The money should have been collected in the past, or more likely, the money should come from some mythical future owner. It is entertaining to sit in meetings and listen to owners shout how unfair it is that the person they bought from ten years ago didn’t have to pony up while denying their responsibility for the past ten years of underfunding. So, they get angry at the board for hiring these “so-called” experts and buying into their fearmongering. They then decide that the easiest way to deal with the problem is to get new directors.

This is where things start to get weird. There are two different paradigms working. One is that advisors are intentionally conservative when it comes to advising their clients about matters such as structural damage. It is obvious why; the advisors get sued if their advice doesn’t address the problem. The other paradigm is that directors are indemnified and, under most state laws, are immune from responsibility for the decisions. Which, if you think about it, forces the advisors to be even more conservative since they are the only party who can be held financially responsible when things go bad.

With this in mind, the directors who engaged the expert and vote to adopt their recommendations, while acting with appropriate care, set themselves up for removal by the very people who elected them to solve the problem. Other owners, who commit to solving the problem, are raised to run against these directors who so obviously failed in their task of solving the problem. These prospective directors make promises about following rules, listening to the owners, respecting their wishes and really solving the problem that only they can solve.

The prospective directors replace the incumbent directors. The problem remains, the solution remains. Rationally, the new directors should make the same decision. After all, the underlying facts have not changed in the slightest. But, as I am certain you can all attest to, this isn’t what happens.

Directors start talking about their opinion. They hold their belief about the best course of action above the expert’s recommendation. They vote on their feelings. More importantly, they vote on the feelings of the owners who elected them.

Which is, fix the problem without it costing the owners money. Of course, the directors can’t, but they don’t want to admit it. So, they delay, diffuse and dither. The Nero approach to board oversight. All they need are fiddles and a match.

The problem remains. There is still no money available to correct the structural damage. And, just as sooner or later even the most expensive wine can turn to vinegar, the structures become uninhabitable, or are so dilapidated that their market value plummets.

I wish I had a solution for you. Logic, however, already provided it. Yes, your association is underfunded. For good or bad, you as owners have elected to keep assessments low. You engage reserve study specialists who wink and nod and agree that this component or that can be left off the schedule. Since you have less dollars in components, your association appears to have a better funding ratio. You sigh in relief. 42%, 48%. Plenty of money. Until the neighbor trips on a broken sidewalk and then the board realizes that the 12,000 lineal feet of pavement is not on the reserve study. $750,000 taken from the reserve to pay for a non-reserve item…

If you wish to walk with alligators, don’t blame society when you get your leg chomped off. Condominiums are a less expensive form of property ownership than single family detached, until they aren’t. You are collectively on the hook for your undivided interest in the common elements. For some of you, you may even be on the hook for the limited common elements.

Don’t deny the responsibility. You live there. You are the only party who can provide the resources to take care of the common elements.

Our advice, for what its worth, is to take a big-picture look at the reserve study. Take the number they put down. Double it. This is what your association is likely responsible for over the next 20 years. This means, where you were once 50% funded, you are now 25%.

If the problem has already manifested itself, you don’t have the luxury of 20 years. You need to bite the bullet and provide the resources that your association’s deliberate underfunding over decades has not accumulated. It is painful. It will likely mean either you or your association borrowing money. If there is a silver lining, it is that your expenditure today might protect the market value of your unit in the future – when it is time for you to sell. But the structural problems really shouldn’t be ignored.

The easiest way to not be eaten by ‘gators is to simply stay away from them.

C.O.R.E. Services provides holistic management services for condominiums in the Portland Metro area. C.O.R.E. focuses on ensuring the board, and the owners, make the best decision possible for their shared property by understanding the governing documents and helping the board and owners live by what is written. If you would like more information or have questions about your condominium, feel free to email us anytime.

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