Q: Before buying our unit, we rented another apartment in the condominium for a month and tried to meet as many people, including staff, to learn as much as possible. Shortly after we bought our unit, the building passed a special assessment to boost reserves. We were sent a letter about another assessment to go with the annual dues increase. When I asked about these increases, I learned that the building needed repairs and is having a dispute with the developer about construction defects. No one with whom we had previously spoken seemed to know about these issues. Should we have done something else before buying? — Ron
A: Unforeseen expenses are a fact of life for any property owner. Sometimes, this comes as unexpected repairs, such as a new dishwasher or A/C. Other times, it is a new roof. This is where reserves come in. While single-family homeowners need to save money for things like a new roof, others who live in multifamily homes count on their association to keep a portion of their dues in reserve. Everyone in a community association should expect their regular dues to keep rising and that occasional special assessments will occur.
Many, if not most, associations do not have sufficient reserves, whether due to recent events, a developer keeping dues low until turnover, or just poor planning. Sometimes this shortfall can be made up by raising the dues; other times, it will take one or more special assessments to get caught up. Fortunately, once the repairs are made, or the reserves are fully funded, the rates will stop rising and may even decrease slightly.
While small increases are unavoidable, large ones can often be ferreted out during the purchase process. Trying to get to know the building and speaking to staff and potential neighbors is a great idea, but it is not enough.
Buyers should review the financials, including the budget and reserves, when purchasing in a community association to ensure the community is financially healthy. They should also review at least the last year of minutes from the board meetings to ensure no problems or special assessments are being discussed. It is a good idea to check the court records available on the internet to determine if the community is involved in any costly litigation. Finally, for a small fee, buyers can purchase an “estoppel” report that discloses important information about the association and its financial condition.
Board-certified real estate lawyer Gary Singer writes about industry legal matters and the housing market. To ask him a question, email him at gary@garysingerlaw.com, or go to SunSentinel.com/askpro.