South Florida’s Senior Citizens
The Array of Problems Facing Older Buildings

By Daniel Wasserstein, Esquire

In South Florida’s current real estate market, problems surrounding the vast amount of new construction, particularly high-rise condominiums, seem to garner a substantial number of headlines. The flood of new units constantly coming on the market along with the certainty of more to come has created a cloud of despair looming over the once sunny skies of South Florida real estate. Prices and rents are dropping, pre-construction contracts are being breached, and one need only look to the skyline, dominated by cranes, for assurance that these problems are not disappearing anytime soon. However, the volatility surrounding new construction is not the only reason for a downturn in the overall market. Surprisingly, it seems that South Florida has forgotten about its senior citizens--those older buildings that are also contributing to the real estate woes facing the area.

Unit owners in older condominiums have the daunting challenge of addressing substantial mechanical and structural repairs that their aged buildings require. Since the banking industry has tightened its lending requirements, the burden of making these repairs has increasingly fallen on the backs and the wallets of unit owners as reserves on hand are insufficient to address the cost of remediations. In fact, many condominium documents contain provisions that specifically permit unit owners to waive reserves entirely. While such a waiver may be beneficial to unit owners in the short term, when a building is relatively new, such provisions for older buildings have proven problematic as unit owners must inevitably and immediately fund the undertaking of massive repairs directly out-of-pocket. As a result of this situation, special assessments in these older buildings can grow at a rapid and sizable rate and many unit owners simply cannot afford to make their respective payment. Such unit owners often go into arrears and eventually either the condominium association forecloses on the unit or the bank forecloses on the unit if the owner is failing to also pay the mortgage. If the condominium association forecloses, then it takes title to the unit. This is a problem because the association will not receive monthly maintenance or special assessment payments from this unit until it is sold off. Unlike an association foreclosure, when a bank forecloses it pays the monthly dues for the unit going forward, however, it is only legally required to pay the lesser of 1% of the total mortgage value or the past 6 months of the arrearage on the unit to satisfy any accumulation of fees prior to the foreclosure. Therefore, most foreclosures, although necessary, are harmful to the cash flow of these older associations and their ability to fund repairs. This inevitably becomes a vicious cycle as more non-paying, foreclosed units means that the remaining unit owners take on a greater proportion of the total special assessment, which in turn leads to more foreclosures.

As if this wasn’t enough of as problem, cash flow problems for older buildings are exacerbated by a statutory 40 year re-certification process that requires all buildings of such an age to pass certain structural and electrical requirements as determined by the City and/or the County. This re-certification process undoubtedly adds to the burden these buildings and their respective unit owners already face, as additional engineers and contractors must be hired to remedy the construction concerns identified by inspectors.

Going forward, these senior buildings should properly adopt a healthcare plan in the form of reserves to prevent such financial debacles from occuring. If unit owners pay a reasonable monthly premium to have such protection, when catastrophe strikes in the form of major repairs they can rest assured that their accumulated reserves, rather than their individual bank account, will substantially, if not entirely, cover the associated costs.

Article Concepts: condominiums, high-rise, older buildings, reserves, assessments, foreclosures, recertification.

© 2008, The Barthet Firm