(Editor’s Note: This is the third in a series of replies to a unit owner of a community that was ravaged by fire. You can read the first two installments at https://askmistercondo.com/tax-implications-of-converting-fire-damaged-condo-to-investment-property/ and https://askmistercondo.com/reduced-common-fees-after-a-fire/)
J.S. from Pennsylvania writes:
Dear Mister Condo,
Thanks for your advice. I hired a very good CPA who specializes in real estate. In addition to that, I was elected to the condo board and I represent all of the owners who have lost their homes in the fire. I have found a few disturbing things and have been a thorn in the side of the other condo board members as well as the management company because I like asking the questions that they do not want to answer. They are still collecting 55 condo fees from all of the owners of the burned out units and I learned where all of the money is going. Those collected fees are being used to pay the increase in the INSURANCE! Since the fire, the original insurance company dropped the insurance on the condo buildings. The new insurance is high risk and incredibly expensive. Since the fire the insurance went from $40K per year to a staggering $90 K per year. That’s where the fees from myself and 54 others are going, I really hit a nerve when I asked the board that since we will be ending up with smaller condos (some by 200 square feet), will there be a reduction in condo fees? According to the bylaws the condo fees are determined by the square footage. All I got from them is how hard they have it living there in their units located in the other buildings after the fire. They went on to say that I will wind up with a new condo and their condo values will go down as a result. I think in the end there will be a class action lawsuit against the condo board. They need the money to pay the insurance and the latest report from the builder stated that the condo building will not be completed until December, 2014. At the rate people are filing for bankruptcy and unable to pay their condo fees; my best guess is that the association will have liens against 1/4 of the owners before the condo is rebuilt. They should have offered us all a buyout and converted the site of the burned out building as a green space. This has turned into a big mess and I don’t see a resolution to what is going on here. Any final thoughts?
Mister Condo replies:
J.S., as we have discussed earlier, the repercussions to such a significant disaster to a condominium or community association are severe. What we haven’t discussed are all of the unique governance issues that a community faces after such a disaster. If ever there is a time to work closely with a legal professional and Management Company with experience in this highly specialized area of condominium law, it is now. As a Board member you certainly have the ability to suggest to the Board that it is in their best interest, and the best interest of all unit owners, to work with a professional. It really is the only way to assure well-intentioned Board members that they aren’t inadvertently making mistakes that cost the community even more if the ugliness of lawsuits result from improper governance.
Every state has its own set(s) of laws regarding common interest communities and condominiums. In Pennsylvania, the acts that are commonly referred to are the Uniform Condominium Act and the Uniform Planned Community Act, also referred to as Title 68. You can find an entire list of these laws at http://www.legis.state.pa.us/cfdocs/legis/LI/consCheck.cfm?txtType=HTM&ttl=68. More importantly, you can find a list of highly specialized attorneys that handle these matters for condominium associations like yours at http://www.cai-padelval.org/directory/category/attorneys. These attorneys are members of the Community Association Institute and have spent a great deal of their time learning the particulars of law that effect condominiums and community associations.
A few notes from me to you, J.S.. Just as initially surviving the fire was the highest priority for residents and unit owners when the fire struck, getting your condominium association back in good health should be the Board’s highest priority right now. Everything has changed. The insurance premiums are now very expensive. There will be newly built units. There will be new square footage of units to consider. Documents may need to be amended to reflect this. Competent guidance from a qualified professional is key to the successful implementation of a recovery strategy. Liens and foreclosures may be an unfortunate consequence of all of the increased cost of this restructuring. Surviving the disaster of the fire took heroic help from firemen and rescue workers. The new heroes of your community may be the property manager, attorney, and well-intended Board who restore the community back to its former glory and establish the new path to fiscal health for all the unit owners of your association. I wish you success in this epic and ongoing struggle.