Summary:
Since a board of directors (owners) governs condo associations, their decisions can have significant consequences, some of which may be unintended. The tragic collapse of Champlain Towers South 2021, a 12-story beach condo, is a stark reminder of the urgency of proactive decision-making. The cause was basement-level water penetration and corrosion of the reinforcing steel. Engineers had issued a remediation report, but the owners had pushed back on spending money on urgently needed reinforcing repairs. This event underscores the importance of making immediate and proactive decisions and the potential risks associated with condo association governance. It's a call to action, a reminder that every decision matters and must be made urgently to prevent such tragedies.
Florida's swift response to the Champlain Towers South tragedy was to mandate annual engineering reports for buildings over a certain age. While crucial for safety, this proactive measure has led to a significant increase in association fees, resulting in a decline in the value of resale condos.
Article:
The repercussions of the condo crisis extend beyond individual associations. A national mortgage blocklist has emerged, affecting properties that require engineering and material upgrades and those underinsured. This blocklist, which includes 5,175 separate condo projects that do not meet current standards, has significantly decreased property values, making it difficult for owners to sell their properties and for potential buyers to secure financing. Potential buyers may find it challenging to secure the funding for these properties, and this crisis has a ripple effect, spreading beyond condos to planned unit developments and other property types, such as schools, significantly impacting the real estate market.
The entire marketplace for older condo projects is under severe stress. Many owners on fixed budgets face a daunting reality- they cannot afford to see their association dues double or more than double, placing a significant financial burden on them. This financial strain can lead to difficult decisions for owners, potentially making the once-appealing idea of living for less money than purchasing a stand-alone single-family dwelling less attractive. This financial strain is a reality for many owners, and it's important to understand and empathize with their situation.
https://en.wikipedia.org/wiki/Surfside_condominium_collapse
According to architects, 75% of the existing mid- and high-rise buildings in the U.S. require renovation due to various structural and safety issues. The average lifespan of condo structures is about 50 years without significant upgrades. The same applies to other properties, including office buildings, parking garages, schools, bridges, and the entire United States' infrastructure. A glaring example is that parking garages were not designed to withstand the additional weight of electric vehicles, each with a battery weighing 1,000-2,000 pounds or more. This underscores the urgent need for renovations in aging buildings, a need that cannot be ignored.
Renovations include:
- Building code compliance
- Structural upgrades
- Designated substance removal upgrades
- Building envelope upgrades
- https://en.wikipedia.org/wiki/Surfside_condominium_collapse
Fanny Mae has a blocklist of 5,175 separate condo projects that it considers not meeting current standards and, therefore, unwilling to finance. Florida has approximately 1,400 condo projects, followed by California, which has around 700 on the list. A strict condo safety law, which includes mandatory inspections and repairs, was enacted after the Surfside disaster to prevent similar tragedies in the future.
In some cases, owners of condo units, including the structures' airspace, can purchase additional insurance.
Associations are raising condo dues to cover required upgrades and full replacement costs. Most associations will double their dues over the next 20 to 36 months.
Finding financing options and insurance has become a daunting task in Los Angeles, especially for properties located in brushfire zones. Insurance carriers have moved to insure actual cash value rather than complete replacement costs. Actual cash value is the depreciated value rather than the replacement cost value, which, in most cases, will be less than one-half.
State Farm, the primary insurance company, has received approval to increase its policy rates by 22% to cover all required coverages and natural disasters. This increase in insurance costs will be passed on to condo owners, further increasing their financial burden and potentially leading to more owners defaulting on their association fees.
Below is for the technical reader:
Condominium Definition:
An individually owned residential unit in a real property complex of like kind units. Each unit has an assessor parcel number that is separate and distinct from others. The property owner owns the airspace within the walls, while the community association owns the walls and all outside buildings, appurtenances, and common areas. The ownership of a condominium is real property rather than personal property.
A Condominium is a real estate consisting of an undivided interest in common with others and a separate interest called a unit (Civil Code Section 4125).
https://www.davis-stirling.com/HOME/C/Condominiums-Defined
A common association of owners typically requires dues to cover management, common area maintenance, upkeep, and capital improvements. The association bylaws are a recorded instrument from the initial track map filing. They are a senior lien encumbrance that takes priority before future loans and encumbrances.
There is an elected board of directors, a condo management company, and independent vendors who perform the maintenance and upkeep.
The condo management company and the board of directors will allocate funds for all necessary annual expenses. Each condo owner must pay an association fee or risk defaulting and losing their unit in foreclosure.
Condos are similar to townhomes with shared party walls. They are low-rises with two to three stories, mid-rises with four to eight stories, and high-rises with nine to sixty stories. Parking is available in multiple forms, from carports to major parking structures.
Common Interest Developments (CIDs): Includes townhomes and condominiums
Depending on the desired ownership and occupancy composition, CIDs may be developed and structured in various ways. Examples include high-rises, mixed-use buildings, senior communities, golf course developments, equestrian facilities, and commercial buildings, such as office, retail, industrial, storage, and flex space.
Regulations are defined under the Davis-Sterling Act, referenced in California Civil Code 4100. The Subdivided Lands Act, sections 11000-11200 of the California Business and Professions Code, applies. Below are forms of CIDs.
Community apartment projects provide the fee owner(s) with an undivided ownership interest in the entire project, allowing tenant occupants, who are not owners, to have exclusive rights to rent or lease individual apartments within the project. Title to the property may be held individually, in a partnership, limited liability company, corporation, REIT, etc.
Condominium projects provide each property owner with an undivided ownership of a portion of the project, usually referred to as a common area, and an individual fee ownership interest in a separate unit within the physical space, known as a condominium. The condominium space refers to the airspace within a particular unit's interior, extending from the floor to the ceiling and from wall to wall. The designated location of ownership is described in a recorded final map, parcel map, or condominium plan in enough detail to locate the unit's boundaries. Areas within the development may be filled with air, earth, water, fixtures, or any combination thereof. They may only be physically attached to the land by easements for access and support. The individual unit will usually be purchased by an owner or a group of owners.
The common area, land, building, and appurtenances will be owned by a mutual-benefit nonprofit or membership corporation, utilizing a homeowners association (HOA), cooperative agreement, maintenance agreement, or other similar arrangement, all with the same purpose: to establish rules and regulations for the multi-owner use of the property. Condos are classified as real property, meaning that the buyers own the deed of the dwelling unit. In the case of row houses, townhomes, and multi-unit single-family designs, individual owners own the land directly beneath the footing of their particular unit rather than the airspace. In contrast, condominium owners only own the interior airspace. Purchasers of each unit will own the condo outright, subject to conditions such as a loan, government rights, and covenants, conditions, and restrictions.
The fee owner will own the airspace within the walls of the separate unit. The owners of individual airspace or individual units will also own a mutual-benefit nonprofit corporation, referred to as the association, which contains the common areas of the property, including hallways, walkways, laundry rooms, workout rooms, pools, standard utilities, amenities, HVAC systems, elevators, and other shared facilities. Owners will elect a management board of directors to oversee all aspects and make management decisions on behalf of the association.
When an owner desires to sell and convey the title to a new owner, the new owner will take the title subject to all the provisions in the master condominium recorded documents. Each Condo has a separate and distinct legal description and an Assessor's Parcel Number (APN). Additionally, each state within the United States has laws governing condominium requirements.
Planned unit development (PUD) is commonly utilized for single-family home communities. Fee owners have title to the individual units. A PUD has either or both the following: (a) a common area owned by the association or the property owners in common, and/or (b) a common area and an association that maintains the common area with the power to levy and collect assessments. Owners of the association will own the property as tenants in common.
Townhomes are densely stacked, single- or multi-story homes that share one or two walls with the adjacent unit. Each has its unit, often with a small front and rear yard and garage. The footprint will be small, and the density will be significant. The unit owner usually owns the land parcel, the walls, and the unit's interior. Ownership is typically a fee or freehold. Townhouses can also be stacked, meaning each unit will have a separate assessor's parcel number and legal description. This arrangement allows individual ownership of each unit within a larger townhouse complex. Property insurance is customized to handle this type of ownership.
Condominiums are similar, but the property owner owns the unit's interior space, and the entirety owns an undivided interest in the exterior space. The common area, sometimes referred to as a common area or space, will be owned by a master entity, such as a corporation. Property insurance is customized to handle this type of ownership.
If there is land and a structure, a lender's security interest will be recorded against the individual unit of a more extensive collection of attached properties and reflected in public records to ensure adequate notice of the lien. In the case of a condominium, the lien interest is defined as the interior airspace within each unit and the undivided interest in the project's common area.