SHOULD RESERVES BE MANDATORY?

By Eric Glazer, Esq.

Published June 25, 2018

            I hate beating around the bush, so I want to get to the point.  A financial crisis is coming and itís going to be a big one.  Itís also going to hit those that can least afford it.  Itís going to result in massive amounts of foreclosures.  Itís going to result in countless cases of elderly persons being displaced from their homes.  The worst part is, itís absolutely avoidable but I donít believe any legislator would ever have the courage to float a bill to save the pending disaster.

            My last 24 hours made it clear to me whatís on the way.  I was at a meeting last night in a 55 and over condominium that is about 40 years old.  Elderly unit owners were complaining that the pipes are getting old, there are occasional leaks, and they sometimes have to come out of pocket a few hundred bucks in order to clean up the mess in their unit and/or repair that broken pipe.  They are complaining about bills for a few hundred bucks and find it difficult to pay them because their sole income is social security.

            To state the obvious, there is no reserve account.  There never will be.  Generally, senior citizens donít believe in reserving funds for repairs that may be necessary a decade or two from now because they believe they wonít be here anyway.  So, year after year goes by, decade after decade goes by and there is never a reserve fund to fall back on should a major repair become necessary.  As I write this column, the seasonís first storm is forming in the Gulf, and itís still May.  We all know what just one storm can do to the communityís finances.  Even if we are lucky to escape this year,  next year and the next five years without a hurricane or tropical storm coming, there is another storm coming that is simply unavoidable and definitely on its way.

            Think of how much building has gone on in the past 50 years.  It is staggering.  But the buildings are getting older.  As the buildings start to approach the 40 year mark or more, things start to break down and repairs become unavoidable.  Concrete restoration is incredibly expensive, and unavoidable.  Replacement of pipes is incredibly expensive, and unavoidable.  And the same goes for electrical renovations and roof replacements.  All unavoidable.  Yet, so many people, especially seniors, are rolling the dice thinking that none of these repairs will be necessary while they own the property.  That may be true for now, but eventually, everyone rolls a 7.

            If you roll a 7 at the craps table however, you get up and go home.  If you roll a 7 at the condo and all these repairs are necessary while youíre the owner, you may lose your home because year after year after year you decided to waive the funding of reserves and now you have nothing to fall back on.

            So whatís the answer?  I know this is going to sound unpopular, but if action is not taken now itís going to result in much bigger problems of people losing their homes later on.  So, like it or not, some form of reserves should be mandatory and not subject to being waived.  There, I said it.  Letís streamline the way reserves are calculated.  Letís get rid of the ďlife expectancyĒ formula the state says you should follow but nobody does.  Itís a joke anyway.  We all know the truth that the life expectancy of the roof somehow gets longer, the closer you get to the original estimate of how long it was going to last.  Five years ago it had a five year life expectancy.  Money is tight, so today it has a new 10 year life expectancy.  Somehow, like fine wine, the roof got better with age.  We all know that happens, and it happens every day.  So how about we make things simple.  Letís just say every condominium must contribute 10% of its annual budget to reserves for roof, plumbing, electrical, structural and painting.  It all goes into one pot and it can be used for any repair necessary for those categories.  It canít be waived.  If however an association wants to contribute more, they can.

            If we implemented this, Iím guessing the average monthly increase for most condominiums that are not already reserving funds would be anywhere from $25.00 to $75.00 per month.  I know that for some that increase is not easy.  However, itís going to be a lot more expensive if any one of these inevitable repairs become necessary and itís time to pass a special assessment because there are no reserve funds.  God forbid two of these items need repair.  Sorry, but itís still easier for a person on a fixed income to pay an extra 30 or 40 dollars per month than it is to come up with a special assessment of a few grand. 

            Mandatory reserves, for even modest amounts, is a necessary evil.  I say so because I see the hand writing on the wall.  I see buildings getting older and unavoidable repairs coming on strong.  I also see hurricane seasons becoming active with the potential to cause catastrophic results to our communities.  I see fear in the faces of senior citizens now when faced with small special assessments.  What I donít see is sound financial planning for the inevitable, and I donít want to see people, especially the elderly, losing their homes when they donít have the money to pony up and fix up their homes when a special assessment comes their way.

            This year The Florida Legislature looked into the future and envisioned that in the next decade or so, we will all be driving electric cars.  So, they bravely passed an electric vehicle  statute to deal with that issue right now, before the issue got out of hand a decade from now.  Iím asking them to do the same thing now and protect people from losing their homes over the next decade or two by ensuring the condo has a piggy bank to shake lose when massive expensive repairs become unavoidably necessary.  Mandatory reserves are needed now.     


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About HOA & Condo Blog

Eric Glazer Eric Glazer graduated from the University of Miami School of Law in 1992 after receiving a B.A. from NYU. He has practiced community association law for more than 2

decades and is the owner of Glazer and Associates, P.A. a seven attorney law firm with offices in Fort Lauderdale and Orlando and satellite offices in Naples, Fort Myers and Tampa.

 

Since 2009, Eric has been the host of Condo Craze and HOAs, a weekly one hour radio show that airs at noon each Sunday on 850 WFTL.

   

See: www.condocrazeandhoas.com.

   

He is the first attorney in the State of Florida that designed a course that certifies condominium residents as eligible to serve on a condominium Board of Directors and has now certified more than 10,000 Floridians all across the state. He is certified as a Circuit Court Mediator by The Florida Supreme Court and has mediated dozens of disputes between associations and unit owners. Eric also devotes significant time to advancing legislation in the best interest of Florida community association members.


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