August 13, 2007
LOW INCOME HOUSING PROTECTION BILL - IS IT A GOOD ANSWER?
AB 952 is currently before the California Legislature. It would essentially give unit owners of "affordable housing" (often called "BMR" or below market rate units) the power to veto any regular or special assessment that is proposed in an HOA in California. You may want to look into this and pose your views to your legislators, and the California Legislative Action Committee Arm of Community Associations Institute makes it easy for you to do this on its website at caicalif.org (navigate to "HOT BILLs").
Anyway, if you have not heard of this bill, here is my take on it, which has been shared with reporters, industry professionals and the legislators in my district.
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Letter to Legislators voting on AB952 August 20
I am an attorney in California that is active in all of the industry groups in the State and have some National affiliations as well. I have written two books, have ongoing publications, have written many, many articles, have spoken to many groups, and write an ongoing blog. I have addressed the question of "affordability" of common interest development housing therein. I have a website (www.californiacondoguru.com) that offers a wealth of education for homeowners, managers, board members, realtors and anyone interested in the subject matter. There are times I feel like I am doing more than the State of California to "enlighten" the general public about CID living and its pros and cons.
I have provided pro bono services for a person who lives in a BMR unit in the South San Francisco Bay Area - trying to work with his association and also with the City to find a resolution to the question as to how these people who are "lucky enough" be able to get into this housing are supposed to cope with rising assessments and special assessments. In his association, the members were facing an assessment to upgrade the garage doors, and it is something he would not be able to benefit from. The Association's response was, of course (and as expected) - a tough luck type of answer - we are sorry but we did not buy with the expectation of subsizing the BMR units and it is not our responsibility. The answer of the City was more or less a tough luck answer - we will let him get a roommate if he cannot afford to live there. It was a very frustrating experience trying to help him.
It is true that BMR unit owners do not reap the same benefits that non-BMR unit owners would reap by such an improvement. And since there are two BMR units in his complex, he and his other BMR neighbor could, if the passage of AB952 were to occur, essentially block this kind of thing in the future.
But - how fair is that to the owners that have a real estate investment and want to improve their property? How fair is that if his association needs an assessment to replace the roofs to supplement the reserves, and cannot get it approved? It is a real catch 22 and I find that articles written by reporters looking for the sensational story, and someone to blame, find it way too easy to point the finger at HOAs and tag them as - "the enemy".
I have written many articles about problems in HOAs and one appears on my website that explains what happens when a board pinches a penny too tightly. It's a serious problem in this state and a large percentage of the homeowner associations are seriously underfunded, hence, large special assessments are needed to make long overdue repairs. A very common problem HOAs face is preparing for a paint job or roofing job and finding out there is dry rot rampant underneath, because of years of deferred maintenance. Associations that look good on the outside aren't immune from the problems. Beauty is truly skin deep in many situations.
So why not be fair and real in your assessment of things, and recognize that hobbling boards of directors further is collecting money sufficient to pay the association expenses (as required by Civil Code Section 1366.1) is not the answer to the dilemma the BMR unit owners face.
Housing in California is not affordable! It will not ever be. Allowing lenders to squeeze owners in who cannot afford Condo Units and townhomes with subprime lending has caused disastrous results in assessment collections for HOAs - really disastrous. Increasing compliance costs fostered by more "consumer friendly" legislation has forced increases in assessments, and tougher laws on reserves has created funding efforts that are draining homeowners in many instances - but that are necessary to alleviate future suffering in the form of large special assessments. Creating "BMR" units has created a very difficult situation and the passage of AB 952 will exacerbate the problem in California with already underfunded associations. Someone has to get real about this situation, make an honest assessment of things, and look for a solution to the overall dilemma.
There are better solutions than giving the owners of BMR units the ability to veto assessments that are needed to maintain the HOA infrastructure in this state. Being honest about whether "affordable housing" is a reality - or not - is closer to the answer of what needs to be done. My suggestion is that if a City is going to require BMRs, that it force developers to write into the documents that owners understand that the assessments for the BMRs have more limitations on them, because their ability to withstand assessments is hampered, and their ability to capitalize on the improvements is hampered, and allow the general public to subsidize a few BMR units in each association by picking up the slack for the extra overage in special assessments. A fair and honest disclosure needs to be made to potential purchasers. Honestly, this might be less painful than picking up the slack for the foreclosed unit owner that could not pay the special assessment and was forced out of his or her opportunity for "home ownership." And it certainly is less painful than preventing HOA boards from being able to raise money sufficient to meet its legal obligations.
Hopefully, we are a society of people that would step up, if the burden is not too heavy (limited number of BMR units). And if not, maybe the myth of "affordable housing" should die. It is a term that should be reconsidered.
Sincerely,
BETH GRIMM
Posted by Beth Grimm at 10:22 PM
January 31, 2007
EARTHQUAKE INSURANCE CRISIS - Yes, Virginia, There is One - AGAIN!
I was at a luncheon in Westlake Village Calif yesterday put on by CAI. I went there to socialize, eat, and see colleagues and friends in the area. But especially, I went there to see what the CEA offers as insurance protection. I came away with a very uncomfortable feeling, and it was not the food, or the company. It was the topic. I have written articles on "Earthquake Insurance - To Buy or Not to Buy", two versions in fact, one based on a pragmatic discussion about why Boards should not "Just Say No" without doing considerable footwork involving the members, and one from the "Mickey Mouse" perspective of how to assess the risk. (Visit me at http://www.californiacondoguru.com to have a look.
But I feel the need to delve deeper into the overall problem and enlist help. Why? Because the problem goes deeper every time I scratch at it.
The CEA presenter made some things very clear. The CEA will not be selling earthquake policies to associations - they are classified as commercials. The CEA sells "residential policies" - and thank goodness for it, because that is a much needed product. Homeowners in single family and condo developments can go there and get coverage intended only as a "mini" policy, meaning it will likely not provide full coverage, unless you live in a box (and still, there is a 10% deductible and lots of small print involved). Go there, and read all you can, and you will see that you can take advantage of the options, to fill the gaps - as much as they can be filled, with the Association coverage. If your association does not carry EQ insurance - then you can still get a policy, but the premium is somewhat higher.
So for condos, what does the CEA policy do? It provides options for contents, building coverage for what you are responsible per the governing documents (paint, carpet, possibly cupboards, dry wall, or such), loss of use, even reduction in value of your home if that occurs, but most importantly, probably - loss assessment coverage for condo owners. When the CEA was set up, the loss assessment (that could be used to pay the deductible) limit for condos ($25,000) might have seemed palatable - but now, it probably won't cover all of the deductible costs in any sizable event for any condominium in this state with serious damage, except maybe in the most depressed areas. You can get more information by visiting the website, in fact, a lot of it. Go to http://www.earthquakeauthority.com.
Why is this important? With the severe increases in costs of the HOA master insurance policies, and the reductions in coverage being offered, the last vestage of hope was that owners could protect themselves to cover the deductible they might have to pay a fair share of (save the 10% or 15% deductible chosen for the CEA policy).
That hope is waning.
What saves an HOA in an EQ event that causes rampant damage throughout the complex is the owners remaining, bucking up, and weathering the assessment for the deductible and uninsured damaged areas. The SBA in Northridge came in in many cases and offered low interest loans. Owners in Associations that carried EQ insurance were generally able to survive and rebuild. Not so much with the uninsured associations. This happened because owners could withstand the temporary reversal in fortune (the fortune being the also substantial appreciation enjoyed by many Californians).
If the costs go out of reach, and associations do not carry EQ insurance, that will be a serious problem for CID housing and the economy of the state. If association do carryh the EQ insurance but the individual owners do not do EVERYTHING THEY CAN to fill the gaps in coverage, that could also be a serious problem for CID housing and the economy of the state.
And now, even if the owners do EVERYTHING THEY CAN to insure, they may not be able to count on their neighbors to do the same - and may not themselves be able to insure the gaps to an affordable level.
The availability of earthquake insurance is a big issue and needs the attention at the highest levels. I am sure that heard the CEA rep say in essence that it can do better with the monies collected for premiums than private carriers simply because of the lack of costs of doing business for profit. So I have to ask, would it not make sense for the CEA to be expanded into providing coverage for HOAs? I can think of no other solution? Can you? I invite comments. (Private insurer and brokers, you may hit me with comments too - but not to hard I hope!)
And does this mean I do not believe in earthquake insurance? Not at all. I believe in getting it, as much as possible under any circumstances, with as much coverage as the association and each individual owner can get. It could save your association when the "big one" hits and that is enough for me as a condo owner. Do I believe it is then a non-issue? No I do not. We need to keep fighting for options. This is ONLY ONE AREA of concern that needs attention, but it is a big one.
Posted by Beth Grimm at 10:01 AM
ARE CONDOS REALLY AFFORDABLE HOUSING?
Condos are sold as affordable housing. It is the only way lots of people can get the advantage of amenities like pools, parks, fancy clubhouses, and things like that. In some regions, common interest housing is the the only form of housing one can find. And for many, it is simply the only way they can afford a home. But are condos affordable? Many are wondering, here is a conglomeration of recent emails I received:
"I bought my condo four years ago. I was just able to get in with a creative loan. I was squeaking by to make the payments, and thought things would get better. But they are just getting worse. Everytime I re-budget, or get a raise at work, or think things will improve, my condo fees go up. Now we are facing a possible special assessment because our board did not save enough money to replace the roof. I am probably going to lose my condo. Is there anything I can do? I would like to sell it and go back to apartment living (no worries there) but the market has tanked. Do you have a solution for me?"
I wish I had a solution. Home ownership should be special. In California, as in other states, this product (condos) is sold as an "affordable, care free, get amenities" product. But there is another side. Costs have increased in every area for condo owners. They often have to pay premiums for water because use is combined into multi-living situations. Their associations have to pay commercial rates for insurance even though the housing is residential. They commonly suffer the common maladies associated with poor building construction and the higher costs of contractors insured to work in common interest developments (yes, there are special - meaning higher - rates for doing construction work on CIDs in California). And last, but not least, they suffer the ever increasing compliance costs that come with tighter, more technical and more complicated legislation, which is rampant in some states, especially California. They pay more for professional management because of training that is required to be considered "certified". But can they do without this legislation or the rights and protections afforded by it? That is the toughest thing. The associations are for the most part (since more than half the HOAs in the state are smaller than 50 units) run by volunteer boards with no training, no expertise, and sometimes, no brains or consensus building ability.
This discussion could lead to 50 blogs on the problems with HOA living. I do not want to become like the press, where it seems all bad. Because it is the bad news that makes the news. But the point I want to get across is that "affordable living" does not always mean what it sounds like. In the case for California housing, "affordable" means you can get in with creative financing, but when the costs rise seemingly without control, can you get out?
Posted by Beth Grimm at 9:42 AM