Florida Condo Associations still face a problem with past due accounts receivables. Condos were bought by investors hoping to flip them and make quick cash during the heights of the real estate boom. With condo prices at 40 to half of their purchase price, many owners have lost their investment and stopped paying their monthly condo dues. Unscrupulous owners rent out foreclosed units, without getting approval from the Association, and they don’t pay their Association fees. Some owners have given up and decided to live in their condos for free while they wait for a call from a deputy sheriff. Tri-county courts are so backed-logged, it is possible for someone to live in their condo for free while waiting for a deputy sheriff.
Desperation breeds Opportunism
As associations struggle to reduce costs, they are open to being lied to by anyone promising to “reinvent the wheel” to lower their expenses. As white knights, so-called community advocacy firms claim to be able to swoop in and reorganize Association vendors in order reduce expenses.
Many Associations terminate their property managers or community association managers in an attempt to reduce costs. Although this may be a temporary solution, it creates new problems as the volunteer board members don’t usually have the necessary knowledge and experience to manage a condo community. There is no quick fix for the problem.
It is common sense to say that if it sounds too good for it to be true it probably is.
However, there are steps that an Association can take without hiring “consultants”. There are many trusted consultants. I recommend getting referrals.
1) Have your insurance documents been reviewed by an independent agent of a reputable company? I’m available to help, but please don’t believe me. A Condo Association Budget of up to 70% can be used as insurance. The best way to control your Budget is to lower your insurance premium. I have a account in which I reduced the annual premium by $90,000. An agent previously failed to mention mitigation credits. Monthly dues for this property ranged from $450/month up to $230. For every family living in this community, that’s $2640 annually savings! There are many technical aspects of insurance. It is the job of the agent to help the Association understand what they are buying. There have been Boards that don’t know what they’re buying because they are volunteers who are not familiar with insurance terms. This opens the possibility of being overcharged. The best market players are all competitive and customers benefit from having several firms competing for their business. Although there are fewer insurance companies willing or able to do business with Florida, there is a large number of agents. An additional or third set of eyes will be helpful in keeping the incumbent informed, especially if they are aware that they won’t offer the best coverage and price.
2) Find an attorney who is familiar with blanket receiverships. These are being used by Miami-Dade Judges to place liens on past owners. The cost of a lien being placed on deadbeat owners was at least $3,000, which is a fact that non-payers were aware of. For example, if a community had 10 or more past-due residents, it was impossible to pursue each unit individually. The blanket receiverships cover the entire property. Owners will hand over their rent in order to avoid being placed in jail for civil contempt. Check out my blog entries about this topic.
3) Create a contract reviewing committee to review all vendors’ contracts. Vendors must be able to explain to the board what services they offer at the agreed price. Before any employee can be allowed onto the property, vendor contracts must state that the vendor will provide certificates of insurance to the Association and name it as Additional Insured on Liability and Worker’s Comp. Minimum limits for Liability Insurance should not exceed $1M per occurrence/$2M annually and Workers Compensation should not exceed $500,000 per year. Remember that the FL Supreme Court has ruled the Association is ultimately responsible if an employee injures themselves on the property. Any vendor refusing or refusing to submit to the review should be raised as a red flag. A red flag is any vendor who refuses to produce an insurance certificate. It is important to remember that the cheapest vendor might not always be the best. The best vendor is a licensed and insured one. Although they might be more costly, it is better to have someone who understands what they are doing, and complete the job on the first attempt, than an unlicensed, uninsured contractor who may do the wrong thing. An Association had to pay for the paint damage to their Jaguar last year after they hired an unlicensed, uninsured vendor. The vendor who has the proper insurance will be more likely to do high-quality work. If a vendor isn’t careful enough to have insurance, they will likely cut corners in other areas of their work. Insurance companies review vendors’ accounts regularly, so vendors with insurance mean that someone is watching. If they have too much claims, their insurance premium may be increased or cancelled.
4) Take a census of the community. Although this can be difficult and time-consuming, it is worth the effort. It will allow you to get to understand your neighbors and perform a head count. Associations will feel more connected and will also be able to identify illegal renters and residents who are not paying their rent. The process for bringing in past due accounts can start with the help of an experienced attorney.
