New condo board faces difficult decisions – How to pay for new A/C without alienating condo owners
By Deborah Goonan, Independent American Communities
The story of the iconic Phoenix Landmark Condominium, as reported by Catherine Reagor and Jessica Boehm of The Republic, is a typical example of everything that can go wrong for condo owners.
Landmark Condo Association started off on the wrong track from its beginning in 2006. At that time, a developer converted what was then a 46-year-old apartment building into condominiums for sale. Ground floor units were sold for commercial use as part of the same “mixed-use” owners’ association.
What is a condo conversion?
Apartment to condo conversions were quite common in the years leading up the great recession of 2007. Investors and developers purchased existing apartment buildings, quickly completed cosmetic updates inside and out, and then began selling condo units to investors or first-time homeowners.
Two common outcomes of these hasty conversions were shoddy construction and under-funded reserve accounts for newly established condo associations.
A third problem for many condo conversion projects: the abrupt crash of the real estate market, which caused condo values to plummet, and left developers holding onto unsold units.
Landmark’s construction defect lawsuit
According to The Republic, Landmark Condo Association sued the developer after discovery of construction defects. The parties arrived at a $6M settlement in 2013.
Homeowners thought that $6M would be used to make all necessary repairs to include replacing the air conditioning system. Apparently, however, money received from the legal settlement was spent on other repairs.
Two factors present major financial challenges to condo owners. First, since Landmark was almost 5 decades old at the time of its condo conversion, new owners started with a very low reserve fund for their condo association. Second, most construction defect settlements fall short of the actual cost of repairing or replacing defective components, especially after attorney fees are deducted from the settlement.
Therefore, it is no surprise that a $6M settlement may not be large enough to resolve all of the 236-unit condo association’s problems.
That said, condo owner Francine Hardaway makes some shocking allegations in her interview with The Republic, among them, noting that the condo association plus management team have gone 73% over budget. (See video interview, this is not stated in the transcript.)
No wonder condo owners are teed off. No wonder they organized to stop a $5M assessment.
When the condo association defied the will of its members by raising regular assessments to get around the rejection vote for the special assessment, another owner, Danielle Sutton, sued Landmark Association and Brown Community Management. A judge agreed to stop the $5M assessment, and the board and management company have resigned.
Despite its recent victory, the newly elected condo board now faces the daunting challenge of figuring out how to replace an air conditioning system at a cost that won’t force condo owners into bankruptcy or foreclosure.
Another complicated issue involves the rights and responsibilities of commercial unit owners. In this particular mixed use community, commercial unit (business) owners are apparently expected to subsidize operating expenses of residential condo owners.
And, while that arrangement may seem unfair, if the governing documents specifically require commercial owners to contribute to the air conditioning system – even if they do not personally benefit from the same system – the condo board will have to enforce the terms of the documents, because the courts generally consider the Declarations (CC&Rs) to be a legal contract.
No matter what this new board decides to do, some unit owners are going to be very unhappy. In fact, most of them will likely object to any special assessment, even if the new board makes a sincere effort to be transparent and to obtain competitive bids on the work to be done.
It will also be important to review and change signatures on bank accounts, hire a new manager, and conduct an audit of the books and records. Now that new leadership is in charge, if any misconduct has been concealed in the past, a professional audit will surely uncover it.
Phoenix Landmark condo owners fight $15,000-plus HOA assessments — and win
Catherine Reagor and Jessica Boehm, The Republic | azcentral.com Published 6:00 a.m. MT Nov. 13, 2017 | Updated 8:54 a.m. MT Nov. 13, 2017
Landmark Towers condo owner Francine Hardaway explains the Phoenix condo owners’ fight against the HOA over a $5 million assessment. Aydali Campa/azcentral.com
The bill arrived unexpectedly by email in May. It was from her Landmark Towers condominium homeowners association.
The midtown Phoenix tower’s air-conditioning needed a major fix, and her share to pay for it was $18,000.
Francine Hardaway said she “freaked out.”
“I was horrified and frightened,” said Hardaway, founder of Phoenix-based Stealthmode Partners. “When I bought my condo in 2011, it was at the height of the recession. I bought it for cash thinking that if everything went to hell in a handbasket, I could live there.”
She rents out the condo in the iconic 17-story tower and doesn’t own another home.
After getting the email, she immediately called a friend who lives and owns a condo in Landmark. He told her they were all upset and asked her to come to the tower to talk.
“I thought I might lose my safety-net home,” Hardaway said. “I lost my retirement in the last housing crash and recession. I paid $58,000 cash for my Landmark condo, and it’s about all I have to retire to.”