(CNN) — An independent budget review warned the Champlain Towers South condo association that its financial reserves were critically underfunded in the face of urgently needed structural repairs just over a year before the building collapsed, a document obtained by CNN.
The condo association only had 6.9% of the recommended money to complete repair and replacement projects and maintain financial security, according to a March 2020 report from Association Reserves, a company that analyzes the finances of the housing association.
The report said that several components of the Surfside, Florida building had zero years of “remaining useful life.” These include the driveway and garage, where some experts believe cracking in the concrete may have contributed to last month’s deadly collapse.
The previously unreported study underscores how disputes over underfunded assessments and reserves brought the repair situation at Champlain Towers South to a head.
The association was projected to have just over $ 706,000 in its reserves as of January 2021, according to the report, while the Association Reserves recommended accumulating nearly $ 10.3 million to account for necessary repairs.
Based on that gap, the report found that the Champlain South board was at “high risk” for “special evaluations and deferred maintenance.” About a year after receiving the report, in April 2021, the board mobilized to impose a special $ 15 million assessment on condo owners to raise the money needed for repairs.
Association Reserves founder and CEO Robert Nordlund told CNN in an interview that about three out of 10 condo associations nationwide that his company reviews are at high risk, with less than 30% of recommended reservations. . He said the report shows how important it is for condo associations to accumulate enough money to carry out regular repairs.
“I wish they had hired us five or ten or twenty years earlier,” he said of the Champlain South condo board.
The board has never before received a reserve budget study, according to a separate PowerPoint presentation for residents from November 2020. The presentation alluded to contentious debates among property owners over costly issues. “Complaining or yelling at each other doesn’t work!” a slide from the presentation read, underlining the statement.
The lack of reserves complicated the condo association’s efforts to secure money for repairs. Another presentation for residents in December 2020 said that “two major HOA lenders [Asociaciones de propietarios de viviendas] we were turned down “for loans.
The loans were rejected because the condo association was in a “higher risk category” due to its relatively low monthly maintenance fees and lack of funds saved in reserves, according to the filing.
“We should have a lot more money in the bank so that lenders feel comfortable,” the presentation said. “We have not done reserve studies nor have we set aside enough reserve money to prepare for this day.”
The condo association finally obtained a $ 12 million loan from Valley National Bank in March 2021 to pay for the repairs, according to financial documents obtained by CNN. The special appraisal of US $ 15 million was designed to return it.
Nordlund said he believed his company’s report was “a wake-up call” for the condo board, spurring the evaluation.
The report, which included a visual inspection of the building, also includes photos of damaged concrete on the balconies and façade. Nordlund said that as part of the report, its employees reviewed the 2018 engineer’s study warning of “significant structural damage” to the building’s concrete. He said the zero-year remaining life designation for areas like the garage was likely inspired by that report, and meant that repair projects “must be done immediately.”
A spokesperson for the Champlain Towers South condo association did not comment on the budget report. Donna DiMaggio Berger, an attorney for the association, told CNN’s Chris Cuomo last month that under Florida law, the association’s boards of directors create operating budgets with reservations, but the majority of association members can vote. to give up reservations.
“In too many communities we have members who vote to give up reservations every year,” he said.
Peter S. Sachs, a Florida attorney who specializes in condo law, said the report shows that the board tried to “do the right thing” by getting a full analysis of its reservations. But he said it also reveals how “previous boards may have been asleep at the wheel or unable to overcome political resistance from unit owners” to raise money for maintenance.
The collapse should inspire new regulations that require condo associations to save reserve money and avoid postponing necessary maintenance, said Eric Glazer, a South Florida-based attorney who sits on a committee that will advise the task force that reviews Florida condo law in the wake of the collapse.
“Florida needs to step up and force people to save money for a rainy day,” Glazer said.
Florida law already requires condo associations to hold reserves for repairs that cost more than $ 10,000, but most homeowners can vote to waive that requirement, legal experts in the state said.
In 2008, the state passed a law that requires condo associations to conduct reservation surveys at least every five years. But that rule was repealed in 2010 amid criticism from some real estate attorneys and property managers, NBC News reported Thursday, and regular studies are no longer required.
Nine other states around the country require associations to conduct some type of reserve studies, according to the Institute of Community Associations, a trade association.
Nordlund agreed that the collapse of the building could lead to changes in the practice of condo finance. After the disaster, he said, “We went through that file, looking, did we miss anything?”
“We are in the budget business, not the security business,” he said. But if the board had done an earlier budget study and acted more quickly to raise funds and make repairs, he said, it could possibly have meant “preventing a tragedy.”
George is Digismak’s reported cum editor with 13 years of experience in Journalism