“Collapse” podcast focuses on legal issues of aging condominiums

Standard

This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South  project in Surfside, Florida and Fannie Mae’s response by issuing Lender Letter (LL-2021-14) which directs lenders to gather information from owners’ associations about potential unsafe conditions.

South Carolina has many aging condominium projects, particularly along our coast. And we have an earthquake fault line to consider. Do our local homeowners’ association boards face expensive repair and reserve dangers like those in Florida? Should condominium purchasers consider the financial impact of possible major assessments to address delayed repairs? Should legislation be proposed to address these issues?

My husband and I have considered downsizing to a condominium in Columbia, but after spending some time with this repair and reserve issue, I would have to spend extensive time with the financials of any project that might interest us. And the high-rise projects at the coast face more difficult repair issues than those in the midlands because of salt, sand, water, and wind.

I’d like to recommend a podcast episode to lawyers who may be interested in this topic. And I believe all dirt lawyers who represent owners’ associations and even condominium purchasers should be aware of the legal and financial concerns that were clearly brought to the surface by this tragedy.

The podcast is entitled “Collapse: Disaster in Surfside” produced by Treefort Media and the Miami Herald. The podcast series discusses the collapse, the personal experiences of escape and failure to escape, the media coverage, the legal maneuvers, the insurance issues, and many other matters. The heart wrenching conflict between the victims who lost family members and those who lost their homes was difficult to absorb. I won’t ask you to listen to all of that.

But Episode 8 summarizes the legal and financial issues, and I highly recommend that episode.

Our horizontal property regime legislation is deficient at best. Reserves for repairs are discussed in our  HPR legislation but not required.

Once these huge, often high-rise projects are completed, there is no legislative future inspection requirement. The county in South Florida where Champlain Towers was located has a requirement to inspect tower projects after forty years. Forty years is a long time! Champlain Towers’ forty-year inspection had found the potential problems, but there were no “teeth” requiring the repairs to be made. The property owners of Champlain Towers were aware of the need for extensive repairs, but they continued to kick the can down the road to avoid the expense.

After the collapse, Florida’s legislature considered an act which would have required reserves and inspections, but the effort failed because of the fear of chilling South Florida’s development frenzy. My guess is that South Carolina would face a similar roadblock.

Some condominium projects have served as affordable housing in certain geographic locations and as affordable second homes and rentals in resort areas. The podcast suggests that tacking on the annual cost of reasonable reserves may threaten this affordability. Think about elderly individuals who live in their dream coastal condominium. Taken to a logical conclusion, these projects, properly run, may become available only to the wealthiest among us.

Do you represent residential condominium HOAs or residential lenders? Do you handle residential condominium closings?

Standard

This news from Fannie Mae negatively impacts condo closings

This blog has previously discussed the June 24, 2021 collapse of the 136-unit Champlain Towers South condo project in Surfside, Florida.

South Carolina has many aging condominium projects, particularly along our coast. And we have earthquake issues to consider. Do our local homeowners’ association boards face expensive repair and inadequate reserve dangers like those in Florida? These concerns may impact HOAs, lenders and purchasers. Dirt lawyers should be prepared to assist their clients in navigating these concerns.

Fannie Mae has addressed this issue by issuing Lender Letter (LL-2021-14), which took effect on January 1 of this year. The letter directs lenders that make loans on condominium projects containing five or more attached units to gather information from owners’ associations about potential unsafe conditions.

Dale Whitman, the esteemed retired professor from the University of Missouri School of Law who moderates the national Dirt Real Estate Lawyers Listserv has commented on this letter. He said on a January 24 DIRT entry that HOAs are probably not obligated legally to respond to a lender’s inquiry prompted by Fannie Mae’s letter, but a potential buyer of a unit may not be able to obtain a loan absent a response.  

That’s the crux of the problem. If repair and reserve issues arise in connection with a condominium project, it may become impossible to obtain loans.

DIRT also discussed a December 2021 addendum to the condominium questionnaire of Fannie Mae (Form 1076) that asks if there have been any findings relating to safety, soundness, structural integrity or habitability of the buildings in an inspection report, reserve study or government inspection or if the HOA board knows of such issues. This information is requested whether the issues have been resolved or would be resolved. The form requests information of how funds to make repairs will be obtained.

The lender letter points to a growing concern across the nation about aging infrastructure and significant deferred maintenance issues in condominium projects because a majority of these projects were built more than twenty years ago. Fannie Mae states its condominium standards are designed to support the ongoing viability of these projects.  

Fannie Mae will change the status of deficient condominium projects to “unavailable”, and lenders are able to check the status of projects on Fannie Mae’s “Condo Project Manager™” software.

Consider representing wealthy consumers who may seek to purchase expensive coastal condominium units paying cash. How should a closing attorney advise these clients considering these repair and reserve concerns? This is an issue that should be addressed in residential closing practices.

Do we face lurking condo repair problems like those in Surfside, Florida?

Standard

This is a difficult subject, and I’ve waited to address it for time to pass since the tragic June 24 collapse of the 136-unit Champlain Towers South condo project in Surfside, Florida.

South Carolina has many aging condominium projects, particularly along our coast. And we have an earthquake fault line to consider. Do our local homeowners’ association boards face expensive repair and reserve dangers similar to those in Florida?

Dale Whitman, the esteemed retired professor from the University of Missouri School of Law who moderates the national Dirt Real Estate Lawyers Listserv (Dirt@listserv.umkc.edu) has commented on Florida’s concerns in this regard. (If you’re not already following this listserv, I highly recommend it for all South Carolina dirt lawyers.)

Professor Whitman pointed to two informative and insightful news stories on the collapse, one from NBC News and the other from the Miami Herald.

The legal news following the collapse is that the Florida Bar has appointed a committee to review existing Florida legislation and to make recommendations for changes. Apparently, Florida law requiring reserve studies is weak and can be waived by a majority of the unit owners. To my knowledge, South Carolina has no such legislation.

It was estimated that nearly $17 million would have been needed to make the necessary repairs to the building that collapsed, but that available reserves amounted to only $770,000. Massive special assessments (more than $300,000 per unit) would have been needed. Collection was ongoing at the time of the collapse. But many unit owners simply did not have access to funds in that amount.

Professor Whitman wrote in the listserve on July 8:

“A much more robust program of reserves would have been needed to avoid this problem. But how much?  The need for a large expenditure to shore up the building’s structure is inherently unpredictable; it isn’t like a roof with a 20-year life, for example. But some sort of prediction is nonetheless necessary. Pick a number: say, a goal of achieving a reserve of 20% of the building’s original capital cost over the first 20 years of the building’s life, with continuing growth at the same rate thereafter. That would mean that the original assessments would be considerably higher than they would be with a more modest, conventional reserve program. It would add to the residents’ monthly cost and would make ‘affordable housing’ harder to achieve. But isn’t that better than a catastrophic collapse?”

He also speculated that periodic structural inspections by qualified engineers may be necessary. The building that collapsed apparently had such an inspection in 2018. That inspection revealed structural problems that could have been repaired for $9 million.

A couple of Florida Counties require aging high-rises to go through inspections after they reach 40 years of age. Failing the inspections can result in the loss of certificates of occupancy. But there is no similar state-wide requirement in Florida or South Carolina.

Much more stringent building inspection and condominium law requirements may be needed in South Carolina. I believe our HOA legislative scheme provides only the bare bones necessary to create and maintain a horizontal property regime. And I am not aware of any state-wide legislation that requires periodic inspections of high-rise buildings.

We should watch to see what Florida does and consider making similar changes. These issues are difficult to legislate and enforce but preventing comparable tragedies in South Carolina must be worth the effort.