10.12.23

Multifamily Security Expert Advice

• Nationally recognized security expert Michael Silva once again shared best practices for commercial and multifamily residential properties.  Watch the presentation and discover much more on our Safety & Security page.

• Don’t forget that SeattleCrime.org has an easy-to-use map and database allowing you to visualize reported Seattle crime data for the past 14 years.

Channel Conflict into Change

• The adage be the change you want to see has never been more true than in today’s polarized political environment.

• Are you a learner, a fighter, or a reformer?  Timothy, a community association reformer in North Carolina, created this blog and explanation of these concepts.

  • Learners discover moving pieces that make community associations work.

  • Fighters contend that contracts (declaration/CC&Rs, bylaws, etc.) aren't valid. 

  • Reformers work to change the contracts by changing the law.💡

    • Reform involves intentional engagement such as escalation of concerns, meeting attendance, volunteering often significant amounts of time, etc.

• David Leonhardt’s The Morning newsletter (October 6, 2022) provides great truths:

  • An abiding lesson of political change is that it’s usually accomplished by people who aren’t too pure to treat their opponents with respect. 

  • In a democracy, victory requires winning enough votes to take power, which in turn requires persuasion. That doesn’t mean winning over most of your opponents. It does often mean winning over some of them. And it’s difficult to persuade others if you stop listening to them.  Refusing to listen to the other side of a debate doesn’t have a very good record of success.

Trials and Tribulations of a Volunteer Director - Part I

• This is a new mini-blog series offering more insights, context and considerations.

PART I: A BOARD FULL OF VOLUNTEERS

• The topic of unit-specific HVAC maintenance has surfaced during two recent Board meetings.  HVAC in this case means heat pump systems with a condenser box outside (on common element rooftops and limited common element balconies and terraces) paired with an in-unit fan/coil component (that pushes the air around to heat and cool).

AT the first meeting, a motion was made to simply cancel our long-standing HVAC maintenance contract.  The motion failed.  

THE NEXT meeting saw the same Board member bring a new motion: to have a handyman-equivalent service change out HVAC filters twice a year at a cost of approximately $120/unit.

THE EXISTING bi-annual service by licensed HVAC techs is ~$230/yr/unit.  Anyone who knows anything about HVAC knows that bulk rate is second to none.

Multiple Board members, failing to have a reasonable level of knowledge of the history and practice of HVAC service over the past 5+ years, have referred to HVAC-certified maintenance as “filter changes."  The following questions and comments topped it off: 

There’s an exterior service component for HVAC maintenance?

I don’t want YOU writing [a resolution] because it will benefit YOU and not ME.

This newsletter cannot unpack the entire situation, but can explore to what we owe the displeasure of this exchange with four salient points:

• Individuals who demonstrate an abject lack of knowledge about the subject matter should avoid suggesting changes

• It is unwise to make changes without understanding the status quo 

• If your motion fails, don’t try to resurrect it.

  • The only way to respect Board decision-making is to allow those decisions to stand for some reasonable period of time.  If there’s a true life-safety catastrophe, escalate appropriately.

• Board members are supposed to serve the best interests of the entire association and all its owners and follow the North Star.  Volunteers who cognize business decisions in terms of “YOU” and “ME” have forgotten their job.

Letter to the Editor

Dear Editors,

I was inspired to write to you based on Larry Neppl's September 3rd op-ed follow-up to Erin Jordan's August 27th coverage of the Parkridge Owners Association special assessment to restore a retaining wall.

There is a wide-spread misconception amongst condominium homeowners that loss assessment coverage is a magic wand of sorts that will pay for special assessments resulting from deferred maintenance.  To the contrary, loss assessment coverage pays for amounts specially assessed to individual units based on a loss covered by a property's master insurance policy (for which the policy cannot cover the entire loss as an example).  With the exception of unique situations (e.g. a roof in disrepair must be replaced due to a covered loss such as a hail storm, etc.), property insurance policies provide no guarantees and/or relief for the burden of deferred maintenance.  Simultaneously, our nation has found itself in the middle of a property insurance crisis driven by climate change and a lack of housing affordability driving homeowners from relatively expensive metropolitan areas with less severe weather patterns to geographies beset by drought, wildfires, flooding, hurricanes and tornadoes.

Insurance aside, many community association homeowners discover the unfortunate reality of years or even decades of lacking reserve contributions, lacking fiscal, governance and professional oversight, and mismanagement only after a special assessment.  The statutory framework supporting community associations and the entire industry servicing over $100B in annual assessments deserves nothing less than sea change toward homeowner-centric legislation and practices, respectively. 

Embezzlement ^7

• The latest.  View our prior coverage here, here, here, here, here and here.

Owners of the 454-unit 1970’s era Makaha Surfside condominium recently learned that $339,364.83 had been embezzled from their condo association.  This is the largest loss of its kind discovered in the state of Hawaii.

The scheme involved unauthorized payments to vendors based on fraudulent invoices for work that had not been performed, related to projects that may have been planned but remained “unexecuted,” according to the board’s letter.  The theft apparently went on over at least a couple of years, according to two people with knowledge of the situation…

Although the board attributed its discovery to a routine audit, the losses had not been uncovered during previous annual audits required by state law. Instead, the theft was discovered only after a few individual owners raised questions about what they believed were management and financial irregularities, according to several people familiar with the situation, including current and former owners.

They say questions raised were initially resisted by the board, and it was only through repeated and persistent questioning that the board finally agreed to undertake the audit that found one unauthorized payment, then another…

This Waianae Condo Development Has Lost Hundreds Of Thousands To Embezzlement — Ian Lind | Honolulu Civil Beat | October 10, 2023

Declarant Control - II

• THIS isn’t right.  The Village at Towne Lake has a serious developer control challenge.  So do many other communities (read more in Issue# 75).

• NOT ONLY is the association still under developer control, but the developer will maintain control so long as there are as few as ~4 lots remaining because of an assignment ratio of 1 lot = 20 votes.  

• FURTHERMORE, the developer has excluded itself from paying assessments of any kind.

Georgia homeowners battling against empty HOA promises

HOAs are supposed to protect your home but some homeowners feel like hostages instead — Rebecca Lindstrom | 11Alive | April 16, 2018

Past coverage:  1,  2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 & 20. 

Environment

• Sound familiar?  Watch ABC’s coverage of recycling trackers in Issue# 67.

A plastic drop-off program embraced by 12,000 retail locations and more than 500 brands in the US has been putting packaging into landfills. 

US Store-Drop Off Plastic Recycling Often Ends Up in Landfills — K Onah Ha | Bloomberg | September 29, 2023

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How much of the environment will humans plunder to power our electric dreams?

$67 Billion of Rare Minerals Is Buried Under One of the World’s Biggest Carbon Sinks — Vipal Monga | WSJ| September 28, 2023

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In August, researchers in China published a study describing their development of a synthetic sponge that makes short work of microscopic plastic debris. In tests, the researchers show that when a specially prepared plastic-filled solution is pushed through one of their sponges, the sponge can remove both microplastics and even smaller nanoplastics from the liquid. These particles typically become trapped in the sponge’s many pores. Though the sponges’ effectiveness varied in experiments, in part depending on the concentration of plastic and the acidity and saltiness of the liquid, optimal conditions allowed the researchers to remove as much as 90 percent of the microplastics. They tried it in everything from tap water and seawater to—why not—soup from a local takeaway…

Sponging Up Plastic Pollution — Chris Baraniuk | Hakai Magazine | October 05, 2023

Housing Affordability & Homelessness

• Will ‘Yes In My Backyard’ (YIMBY) turn the tide on affordable housing?  Multifamily residential (including mixed-use properties) are key to the equation.

Can NYC Ease Housing Costs With 'City of Yes' Proposal? — Kriston Capps and Sarah Holder | Bloomberg CityLab | October 3, 2023

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In a significant policy change, Fannie Mae has announced that, starting from the weekend after November 18, 2023, it will accept 5% down payments for owner-occupied 2-, 3-, and 4-unit homes. This marks a departure from the previous multifamily financing requirement of 15-25% down payments for duplexes, triplexes, and four-plexes…

The maximum loan amount allowed for these 2-4 unit properties is set at $1,396,800, ensuring that larger and more expensive properties can be purchased with flexibility. Additionally, the elimination of the FHA self-sufficiency test for 3-4 unit properties means that buyers will face fewer hurdles when seeking pre-approval for these types of multifamily homes.

Fannie Mae Introduces 5% Down Payment Option for Multifamily Homes — Aleksandra Kadzielawski | The Mortgage Reports | October 5, 2023

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This research has six key findings:

1. Condo development has grinded to a near halt in Colorado. 

   1. Condos are the most affordable owner-occupied housing type. Condominium development between 2018 and 2022, across 11 front range counties which collectively house over 80% of Colorado’s population, was 76% lower than between 2002 and 2008. This amounted to 14 new apartments for every 1 new condo in recent years, while there was 1 new condo for every 1.25 apartments in the 6 years prior to 2009.

2. In 2022, Colorado’s housing affordability dropped at the 2nd fastest rate since 2009 according to CSI’s Homebuyer Misery Index.

3. Consumer demand for condos remains strong in Colorado despite the downturn in construction. 

4. Spiking insurance costs make condos less attractive to developers.

5. The number of active condo developers in Colorado has fallen due to high costs. 

6. To fill the market demand for affordable condominiums, Colorado needs policy reform that balances homeowner and developer risk. 

The Decline of Condominium Construction in Colorado: Addressing Litigation Reform to Alleviate the Housing Affordability Crisis

— Peter LiFari | Common Sense Institute | September 20, 2023

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…Trading to a smaller home has never been just about spending less money. People move to smaller homes to make their lives easier, to be closer to family members or to eliminate maintenance tasks as they age. But with mortgage rates pushing 8%, a meager supply of smaller homes for sale and steep prices for the few that are on the market, the math doesn’t work in many retirees’ favor.

The number of homes for sale that measure 750 to 1,750 square feet—the range downsizers tend to prefer—dropped 41% since 2019, and prices for these homes are 50% higher than they were before Covid, said Hannah Jones, senior economic research analyst at Realtor.com. 

Downsizing is costliest for those who still have mortgages on their current homes, and are locked into low rates. For them, a smaller home might translate into bigger monthly home payments, further stretching the budget of people on a fixed income.  “It’s far more costly to downsize today than it was in 2019 before Covid,” said Rick Sharga, founder and chief executive of CJ Patrick Co., a real estate consulting firm…

Downsizing Your Home Isn't the Money Move It Used to Be — Veronica Dagher | WSJ | October 10, 2023

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…In 2019 we had mild inflation and a low unemployment rate, but the average 30-year fixed mortgage was a little bit south of 4%. In 2023, even if inflation is heading back to target, a 30-year fixed rate mortgage is nearly 8%.

And the question is why. Why does cool inflation and a low unemployment rate come with such a higher price tag in 2023 than it did in 2019. Obviously one possible story has to do with fiscal expansion, and how much more high-multiplier domestic investment we're getting out of policy. That's not a slam dunk story, but it could obviously be part of it.

If the Fed can achieve the soft landing -- sustainably low inflation and a low unemployment rate -- then that will obviously be an accomplishment that many thought could not be done. But the rate picture shows that we haven't just gone back to how it was four years ago…

—  Joe Weisenthal | Bloomberg 5 Things to Start Your Day | October 5, 2023

Condo Connection's financial coverage is indexed to our Dollar$ and $ense page dedicated to all things CIC finance.

• Federal government shutdown narrowly avoided for 45 days.  Bloomberg editors:

“In no other country does the government routinely incapacitate itself for the sake of political stunts”...

• Recession seems likely.

…For the parts of the economy that matter for making the recession call — above all the labor market — lags are longer, typically 18 to 24 months.

That means the full force of the Fed's hikes — 525 basis points since early 2022 — won't be felt until the end of this year or early 2024. When that happens, it will provide a fresh impetus for stocks and housing to turn down. It’s premature to say the economy has weathered that storm.

6 Reasons Why a US Recession Is Likely — and Coming Soon — Anna Wong and Tom Orlik | Bloomberg | October 1, 2023

Inflation and Monetary Policy

• Lower inflation translates into reduced compensation increases.

Companies are trimming their budgets for merit raises next year, a sign of belt-tightening that could surprise some employees who had enjoyed two straight years of increases.

US employers surveyed by Aon Plc, which compiles compensation data on more than 5,500 employers, said merit raises will average about 3.7% across all industries next year, down from 3.9% this year, as companies rein in labor budgets and inflation eases from last year’s highs. A separate survey from workplace consultant Mercer found a similar trend, with merit-based salaries seen rising 3.5% next year, down from 3.9% in 2023…

Workers: Don't Expect the Same Pay Raise You Got Last Year — Matthew Boyle | Bloomberg | October 2, 2023

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State Street Bets on Fed 'Dramatically' Cutting Rates Next Year — Alice Atkins | Bloomberg | October 3, 2023

Cashing In

• DON’T MISS OUT!  Think long-term.  You’re probably not going to beat the market.

A $10,000 investment in the S&P 500 would have grown to $64,844 between Jan. 1, 2003, and Dec. 30, 2022 — a 9.8% return, according to research from JPMorgan Asset Management.

Now is the time to 'think long term' when investing, advisor says. This chart helps explain why — Lorie Konish | CNBC | October 9, 2023

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• Ignoring the potential money to be made in bonds right now is a mistake.

It's a Good Time to Buy Bonds. Just Know What You're Getting Into. — Oyin Adedoyin | WSJ | October 2, 2023

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Yet yields have been inducing anxiety lately. For well over a month, the speedy ascent of yields for longer-term Treasury debt and a bond market sell-off have been knocking the stock market for a loop.

Still, some financial experts say there’s nothing wrong with buying longer-term Treasurys for the person who wants to keep putting their cash to work. Of course, they need to understand the risks and rewards for bonds when interest rates rise and fall.

Treasury yields are climbing: '...such an attractive opportunity for fixed-income investments' — Andrew Keshner | MarketWatch | October 8, 2023

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In the U.S. Treasury market, the bedrock of the global financial system, 10-year bond yields have shot up to 16-year highs. In Germany, they touched their highest since the 2011 euro zone debt crisis. Even in Japan, where official rates are still below 0%, bond yields are back at levels seen in 2013.

Because government borrowing costs influence everything from mortgage rates for homeowners to loan rates for corporates, there's plenty of reason for angst.

Here's a look at why the bond rout matters…

Why a rout in government bonds is worrying — Yoruk Bahceli, Karin Strohecker and Dhara Ranasinghe | Reuters | October3, 2023

Cashing Out

• Bond rout.  —  Sofia Horta e Costa | Bloomberg 5 Things to Start Your Day | October 6, 2023

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Banks are stuck.  THIS is a picture of interest rate risk.  PLEASE understand this risk BEFORE investing in long-term bonds (including US Treasuries).

The surge in rates caught lenders off guard and the ensuing turmoil led to a wave of regional bank collapses in March… 

While unrealized losses may concern investors, they aren’t an issue for the typical bank customer…

Bank of America Interest Rate Blunder Hurts Moynihan Growth Pledge — Katherine Doherty | Bloomberg | Octobre 09, 2023

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• Debt is soaring.

…This time the vigilantes won’t get far in Congress. Of $6.4 trillion in projected federal outlays in fiscal 2024, only $1.85 trillion is neither mandatory nor net interest. Of that, about half is defense—a vexing category to trim, even in peacetime. Making draconian cuts to what is left would cause a public outcry and still wouldn’t be enough.

Tax hikes could make more of a dent. The left-leaning Center for American Progress points out that, if taxes as a share of the U.S. economy were to rise to just the average among developed economies, the budget would take in $26 trillion more in revenue over the coming decade, based on CBO projections. That is unrealistic, though. 

So are the CBO’s projections: They see average interest rates reversing and no recessions. Adding just a percentage point to their assumed rate would contribute about $3.5 trillion to federal debt by 2033, according to Wall Street Journal calculations…

America’s Debt Problem Is Too Big for the Bond Vigilantes — Spencer Jakob | WSJ | September 30, 2023

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OUCH…

Bloomberg reported losses on Treasury bond with maturities of 10 years or more had notched 46% since March 2020, while the 30-year bond had plunged 53%. 

The collapse in Treasury bonds now ranks among the worst market crashes in history — Filip De Mott | Insider | October 05, 2023

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Treasury Secretary Janet Yellen tries to calm markets amid historic US bond collapse — Aruni Soni  Insider | October 09, 2023

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BlackRock Inc. and Columbia Threadneedle Investments are among firms favoring notes due in roughly one to five years as Treasuries head for a record third straight annual decline, led by losses in longer maturities. Those tenors in particular have been buffeted by a resilient economy and the government’s swelling borrowing needs.

Deepening Bond Rout Has BlackRock, Columbia Favoring Short End - Bloomberg — Liz Capo McCormick &Michael Mackenzie | Bloomberg | October 07, 2023

Stifling Dissent

• The Arizona Court of Appeals, Division One ruled in December 2022 that volunteer directors can be “limited public figures” for the purposes of deciding cases related to defamation, yet not every state has come to that conclusion.

Miami-Dade Case# 2019-005650-CA-01: EL DORADO TOWERS CONDOMINIUM ASSOCIATION, INC. VS LUZ MARINA MONTOYA ET AL - was eventually dismissed for lack of prosecution.

…A successful defamation suit in Florida must prove that the person negligently communicated false statements that hurt the victim’s reputation and caused damage. Slander is spoken defamation; libel is written. If it concerns a public official, the standard for winning a lawsuit is higher — the official has to prove the speaker had actual malice, either by knowingly spreading falsehoods, or showing reckless disregard for the truth. Association board members are not considered public officials, in the eyes of the law.

University of Florida constitutional law Professor Lyrissa Lidsky says that although winning a defamation lawsuit is difficult, filing one is easy. That enables association boards to use the law as a weapon, she said.

“You can cause a lot of pain with a lawsuit,” Lidsky said, “and defamation law lends itself to inflicting that kind of pain.”...

In the 2019 case noted above, Judge Abby Cynamon noted that condo critics don’t have the protections a person would have when criticizing a mayor or some other public figure. There is no case law in Florida that holds “a condo board member can be considered a public or semi-public figure,” the judge wrote.

Condo Wars: Boards can use defamation laws to stifle dissent — Brittany Wallman | Sun Sentinel | September 27, 2023

Boca View Is Still At It

• Remember Boca View Condominium from Issues 69 and 70?  The Lepselter case is still going, but what’s even more troubling is a search of Palm Beach County court records revealing 9 condominium law and 18 additional civil cases back to 2003.

The latest case is 50-2023-CA-011843-XXXX-MB - Owens v. Boca View.  Why?  The association has failed to act reasonably to approve interior unit alterations for years.

The Chevron Doctrine

• The Chevron Doctrine is instructive for community associations.  Give a listen and consider how statutes delegate authority to governing documents and board decisions.

When Congress enacts legislation, a law, it's telling an agency how to do its business. But Congress couldn't possibly include all of the fine details, the fine-grained instruction necessary for agencies to conduct their business. So the doctrine relates to how agencies fill that void in an ambiguous statute. They look at the statute, and they promulgate rules. And they say, this is what we understand Congress to have told us to do. And when a court is confronted with that interpretation, the Chevron doctrine says that it should defer to the agency so long as the agency's interpretation of the statute is reasonable. That's a very deferential standard, and it has been in place, as you note, for a long time, since 1984…

…There's a movement, a part of the conservative movement, that wants to make government smaller, and they view that - this rule as empowering the government to go beyond what Congress has intended. But I would submit to you that the reality is that government needs this sort of flexibility and that when Justice Stevens wrote the decision in 1984, what he was recognizing was, one, that the agencies have a lot of expertise and that if you don't like what the agencies are doing, you vote for a different president. So the people making the decision are accountable to the American people through elections…

The Supreme Court will hear a case that could overturn a 40-year-old legal doctrine — Ayesha Rascoe and Andrew Mergen | NPR | October 08, 2023

Covenant Mandates Require Supervision

• It’s not enough for the law or your governing documents to require a thing.  Your association needs to follow-through.  If your declaration requires insurance coverage X and your association purchases Y, the insurer is not liable.

Farmers’ App. Vol. II p. 116 (emphasis added). Though it appears that the condominium association may have failed to fulfill its obligations under the Declaration, we conclude that it is of no moment. The trial court did not err in granting summary judgment to West Bend.

Indiana Court of Appeals: METROPOLITAN PROPERTY and CASUALTY INSURANCE COMPANY v. WEST BEND MUTUAL INSURANCE COMPANY (2023)

Statutory Limits and Common Elements

• Owners are often surprised by enforcement actions related to improvements made by former owners.  That’s one excellent reason to create a binding covenant.

…The Schoen plaintiff appears to have initially filed the complaint after that board of managers imposed a license fee and additional monthly common charges after changes to existing structures in the backyard, which a predecessor in interest had initially erected, were made. After the unit owner filed suit, the board then counterclaimed for more permanent changes to the space itself, and for an injunction requiring the removal of the structures there.

…Because the structures were initially built in the backyard by the predecessor in interest, and because the condominium did not counterclaim for their removal for seven years after the completion of the initial enclosure, the Schoen plaintiff argued that the counterclaims should be barred by RPAPL §2001...

…Since plaintiff does not own the land where the structure is constructed, RPAPL 2001(2) is not applicable to the action. That plaintiff, as a unit owner, holds an undivided interest in the backyard as a limited common element is of no moment given that she gained her right of access to that portion of the property for her exclusive use by an affirmative easement. 

Supreme Court of New York: Schoen vs. Board of Managers of 255 Hudson Condominium

RPAPL 2001 Does Not Serve As Time-Bar to Condominium Board Requesting That Unit Owner Remove Structures From Outdoor Space

— Andrew B. Freedland and Deborah Koplovitz | Herrick | September 07, 2023

Geese Gone

• As with Flags ‘n Turf, this association ignored applicable municipal code.

According to the Miramar, FL  municipal code:

(a)The city is hereby declared a bird sanctuary.

(b)It shall be unlawful to hunt, wound, molest, injure, or kill any bird in the lands embracing the city.

(c)It shall be unlawful to capture, except for the preservation of the health and welfare of the public, for resale or private use, any bird in the city.

Florida homeowners association face fine after drugged geese drown — Bob D’Angelo | Cox Media Group | December 11, 2021

Adverse Possession

• You’re gonna get stitches for taking our ditches…  Also reference Issue #63.

Nominally, the suit is about a trivial sliver of land behind two lavish apartment buildings near East 79th Street....

In its lawsuit, the co-op board is arguing that it should be the rightful owner of the pit through a doctrine called adverse possession, in which a party can make a legal claim to a property after 10 continuous years of undisputed use. While the property is legally owned by Mr. Spitzer’s neighboring rental building, 985 Fifth Avenue, the co-op claims that it has routinely and openly used the roughly six-foot-deep niche to store construction supplies and has never been asked to stop.

“I don’t believe there’s ever been an adverse possession case filed with these stakes, by people of this stature,” said Adam Leitman Bailey, a lawyer representing the co-op.

Eliot Spitzer and an Elite Co-op Board Fight Over a Ditch — Stefanos Chen | NYT | February 3, 2023

Shameful Advocacy

• Richardson Ober law firm recently posted on X (AKA Twitter):  “We don’t just know the law, we make it.”

🤯  It’s an arrogant message to say the least.  The only people directly responsible for making laws are elected legislators.  CAI and its 46 chapters spend in excess of $1MM annually lobbying state legislators.  Becker & Poliakoff is perhaps the most active and most infamous lobby-friendly law firm.

For decades, the law firm representing the collapsed Champlain Towers South has waged a successful lobbying campaign against condominium safety measures. Now, the Becker firm is at the center of discussions about how to make condos safer.

The irony is not lost on those who’ve observed the 48-year history of the Fort Lauderdale firm formerly known as Becker & Poliakoff.

“A lot of stuff I tried to propose, the No. 1 group that would fight me was Becker & Poliakoff,” said former state Rep. Julio Robaina, R-Miami, who focused on condo legal reforms when he served in the Legislature. “That was my nemesis.”...

Becker & Poliakoff law firm the 'nemesis' of condo safety reformers — Brittany Wallman, et al. | Sun Sentinel | September 28, 2023