As family and survivors mark the anniversary of the deadly Surfside, Florida condominium collapse Friday, June 24, two Southern California companies are offering new tools to help buyers and condominium owners assess the credibility of their own homeowner associations.
Their goal is to avoid traps like those that may have contributed to the June tragedy, when the 12-story Champlain Towers South building was reduced to rubble, killing 98 people.
The Champlain Towers board has been arguing for years over how to pay $15 million for critical repairs, according to press reports. Repairs did not begin until it was too late.
While a federal investigation into the causes of the collapse is not expected until 2024, the Miami Herald reported that design flaws, combined with years of delayed maintenance, caused a worn pool deck to break away from its foundation, knocking over pillars and causing the building to fall. like a house of cards.
In May, Association Reserves, the Westlake Village company of which Champlain Towers South was a client, introduced a new product that will help buyers, owners and board members assess the financial and physical health of their “community associations.”
Called the Association Insights and Marketplace, or AIM, it aims to create a database covering 370,000 “association-driven” national communities, including condominiums, co-ops and townhouses.
HOAs are being recruited to upload their information to a database that will then be used to create reports on the maintenance reserve funds, finances and physical condition of buildings, said Robert Nordlund, CEO of Association Reserves and co-founder of the new AIM product.
The reports are free to participating condominium associations and their members, but will cost buyers $50.
In addition, AIM creates a FICO-type score for each complex, called the FiPhO score. If the score had existed before the collapse of the Champlain Towers, Nordlund said the Florida Towers would have received a score of 45 out of 100 — a poor score.
“We are here to change the entire ecosystem of the public association industry,” said Nordlund.
Nordland and the founder of another new HOA reporting firm, Condofax, said they hope their products will become the condominium version of Carfax, which provides used vehicle reports to car buyers.
Condofax, founded last November, charges $299 for reports based on in-depth analysis of HOA records. Like AIM, it creates a summary report and its own version of the credit score.
“We’ve looked at condominium associations across the country, and really, it’s bad,” said Christopher Gardner, founder of Condofax and head of FHA Pros, which helps condominium complexes qualify for Federal Housing Administration mortgages. “Somehow the condominium associations have largely eluded any scrutiny. It’s pretty amazing and we hope to change that.”
A third California organization, Oakland-based nonprofit Transparency HOA, provides HOA reports for free. A fourth company, InspectHOA.com of Indiana, provided $189. reports 2.5 years to companies such as title firms, iBuyers and real estate investment groups.
“The momentum was that a lot of institutions were buying houses,” said Vishrut Malhotra, chief executive and co-founder of InspectHOA. “(But) our customers started asking more questions after the Champlain Towers incident.”
Tool for buyers
According to product developers and real estate agents, the new products will be a boon to potential buyers, who currently fly almost blind when buying a home that is part of an HOA.
“It’s all new. This is something we haven’t seen before,” said Lisa Dunn, Century 21 Award Regional Sales Director, who led the Orange County Realtors Association task force to encourage more homeowners to qualify for FHA mortgages.
“I’ve never seen a service like (these new) reports,” added Veronica Hicks, broker for Irvine-based Condos Etc. “No one can be sure about… the financial health of the community, the culture of the community, and the quality of governance and oversight of the board of directors. This would be a very useful report for the buyer, for the homeowners association, and also for its members.”
The HOA package provided at the time of escrow should be enough to determine the association’s credibility, said Don Bauman, vice president of public relations for the Community Associations Institute, HOA’s educational organization. Provided that the buyer takes the time to read and understand all of these documents.
But agents and product vendors say the association’s documentation, which can be up to 300 pages or more, often arrives late in the escrow process and is so complex that many buyers don’t read it.
“They just don’t know what they’re looking at. They don’t know how to analyze a condominium association,” Gardner said.
“If you’re thinking about spending $500,000 on an apartment, $50 is one of the cheapest things and one of the wisest things you can do. … It just helps the buyer understand what they are getting themselves into,” said Nordlund.
Special risk assessment
The board of Champlain Towers received bad news about the state of their building almost three years before the June 24, 2021 tragedy. The once luxurious towers were in need of a $15 million total renovation. To pay for this, the board had to charge a “special assessment” from apartment owners ranging from $80,000 to at least $200,000 a unit. But the landlords resisted.
The reporting providers say their products can help buyers assess association risk in the future for a special assessment that is paid on top of monthly fees.
“If we see that inventory (HOA) is low and the roof needs to be replaced soon, you can foresee a significant increase in fees,” InspectHOA’s Malhotra said.
Kelly Richardson, a Pasadena HOA attorney and a weekly for the Southern California News Group, said the Association Reserves’ AIM product is “the company’s first legitimate effort in this regard.”
But the product is far from ready. The AIM database requires thousands of HOAs to go to the company’s website and upload their data.
Nordlund says the company’s report is typically 11 pages long and covers the HOA’s financial condition, property maintenance history and how well the association is performing.
About half of HOAs have sufficient reserves to pay for needed maintenance as their buildings age, Nordlund said. Condominium owners tend to elect board members who promise to control monthly fees, often undermining the association’s financial viability.
AIM aims to give condominium owners the “beneficial purpose” of improving their valuation, rather than the destructive incentive of lowering their HOA contributions and delaying service.
The Condfax report covers six categories, including state compliance, HOA financial health, maintenance provisions, mortgage options for buyers, and insurance.
Transparency HOA provides a one-page report on the financial aspects of the HOA, as well as an assessment. This volunteer organization does not charge for its reports, although donations are welcome. Co-founder Amber Gill says her team is more willing to share bad news about HOAs because they are independent.
“I find it hard to believe that (commercial suppliers) are going to bite the hand that feeds them,” she said.
Richardson said he wasn’t sure the reports would be enough to fully assess the HOA.
“I am concerned that the information, although useful, may be exaggerated in its value,” he said. “HOAs can change quickly and I’m worried about how the reported data will be kept up to date.”
He also doubts that these reports alone will be enough to prevent future tragedies such as the collapse of the Champlain Towers. But the collapse has drawn attention to “how bad apartments are” and the need for apartment owners and buyers to have better access to information, providers say.
“This is the reason the world has changed,” Nordlund said of the Surfside tragedy. “For this reason, we have spent a lot of time and money (on the development of this product). So the future may be different.”