education

 

Informative Spring Symposium Guides Owners Through Maze Of Issues
By Clayton Wallace
A presentation by Alabama State Sen. Ben Brooks (R-Mobile) on May 9 outlining his insurance reform bill that was passed by the state senate the evening before was the highlight the Spring 2008 Condo Owners’ Educational Symposium sponsored by Condo Owner Magazine and the law firm of Daniell, Upton, Perry & Morris. The symposium is designed to help guide condo owners through the maze of regulations and responsibilities associated with a condo investment.

Brooks was one of 14 presenters at the symposium, held at the Cobb Pinnacle Theatres in Gulf Shores. Brooks said one of the highlights of his bill is that it now opens the door for captive insurance pools in the state to include residences. “The original captive insurance bill that was passed in a previous session specifically excluded residential property,” Brooks said. “This bill remedies that and will allow condo owners to take part in the captive insurance program.”

Along with Brooks, presenters included attorneys David Daniell, Lynn Perry and Will Anderson of Daniell, Upton, Perry and Morris; Lee Garrison of Wells Fargo Insurance; Jimmy Fell of Building-Engineering Consultants Inc.; Tom Lott of Morgan Stanley; Attorney Daniel H. Craven; Mike Conroy of Expert Dry H2Out; CPA Robert Grant of Grant, Sanders & Taylor; Rennie Raines of the Baldwin County Emergency Management Agency; Economics and Finance Professor Dr. Ross Dickens of the University of South Alabama; Paul Wesch of The Mitchell Company; Jay Ison of Thames, Batré, Mattei, Beville and Ison Insurance; and Bruce White of Whitehaven Insurance Group. Listed below are just a few of the informative items this all-star lineup of professionals in condo support industries had to say.

Perry and Anderson explained some of the pitfalls and responsibilities associated with serving on the board of directors for a condo. “You can’t act in your own self-interest as a board member,” Perry told the crowd. He said while that may seem like an easy requirement, there are several areas where one can run into unexpected problems.

“There are not that many insurance carriers that will write in the Alabama market,” Garrison said, stressing that because of this condo boards should feel comfortable with their association’s coverage and insurance agency.

Fell told the group that regular maintenance inspections by a licensed professional are important in the life of a building. “Small things that may not catch the eye of a layman could bring big problems in the future,” he said.

Lott stressed that condo associations should have a line of credit in place before one is needed, like in the case of a hurricane. “When you need money, chances are there are a lot of other people who need money at the same time,” he said. “If you don’t have a line of credit in place, it may be a while before you can get one.”

Craven said it was important for an association to keep its governing condo documents up to date. He explained that in some older associations, documents call for board approval for any sales in the complex. “In newer condos, this was taken out, but it is still found in some older condos,” he said. Because of this regulation, some lenders are now forcing these boards to vote for approval on any sale. Along with being a cumbersome regulation, Craven said it should be deleted from governing documents because it is also a violation of the Fair Housing Act. 

Conroy urged condo associations to choose a drying professional before one is needed. He stressed the need to ask the company for references and qualifications before making a choice. He said after Hurricane Ivan hit the area in 2004, numerous companies came to the area to service condos that had been inundated with water. “After Ivan, we had people down here who didn’t know drying equipment from a hairdryer,” he said. “But all of a sudden they became drying experts.” He said the lack of expertise some companies had is showing up now with problems in many structures from what now amounts to years of mold growth.

Grant told the crowd special attention needs to be paid to an association’s reserve fund. The fund is put in place to help the association financially in a time of crisis. “There are three ways to affect major replacements in a condo. The first is a reserve fund. The second is to borrow money. The third is through a special assessment of owners,” he said. “I prefer the reserve account method.” He said special assessments and borrowing money put financial pressures on an owner and an association during a time of crisis. Building up a large reserve fund over time lessens the pressure of coming up with a large sum of money on short notice.

Daniell said board members of new condos who were appointed by the developer have some worries during today’s economic climate when developers are having a hard time financially. “The fiduciary duties of board members will keep them on the hook for damages if a developer runs off with association funds,” he said.

Raines said new laws are in place to influence families in a mandatory evacuation zone to leave. He said in the past if a family refused to leave during an evacuation, little could be done by officials to make them leave. “Now, if adults refuse to leave during a mandatory evacuation, deputies can take any minor children and make them wards of the state,” he said.

Dickens discussed the state of mortgages in the United States, especially those in the sub-prime category. He explained that in the past two decades, the percentage of mortgages actually owned by banks and thrifts have shrunk dramatically. “When Freddie Mac formed in 1980, it made mortgages a type of commodity that could be bought and sold,” he said. As a result, normal investors got into the mortgage market, and today more than half of all mortgages are owned by “mortgage pools” of private investors. “People now own mortgages who know nothing about mortgages,” he said. Because of this development, mortgage companies are no longer personal and have little incentive to work out solutions with borrowers who are having trouble with their payments.

Wesch weighed in on the topic of the number of condos on the market. “I get sick and tired of looking in the newspaper every week and reading there are more than 2,000 condos for sale in Baldwin County,” Wesch said. “It doesn’t paint a true picture of the condo market.” He said his research shows if you subtract the condos off the beach, the beach access condos and the beach view condos, “last month there were only 618 beachfront modern condos for sale on the MLS (Multiple Listings Service).” He said owners of units whose price is so out of line with market value are not truly serious about selling their units, and if you take these condos out of the equation, the number of modern beachfront condos for sale shrinks significantly. “The true number is somewhere between 194 and 244 beachfront modern units for sale,” he said.

Ison said he does not understand why property insurers do not make building construction more of a determining factor in setting insurance rates. “A building that is up to the latest codes should have a lower rate than an older, stick-built structure.” He said greed has made reinsurance companies put “blinders” on to building construction. “They’re not paying as much attention to this anymore,” he said.

White said condo insurance rates have nearly returned to the level they were before Hurricane Ivan in 2004, and as long as there is nothing to increase claims this year, he said he expects to see the rates continue to become more affordable.

Condo Owner Publisher Talty O’Connor said he was pleased with the content delivered at the symposium. “The presenters all did an excellent job in sharing vital information with our attendees,” he said. “We think they all left the symposium with much more useful information than they had before it began.”

Owning a condo is not just an investment, according to O’Connor. “It’s a big responsibility as well. Our attendees should now be better prepared for that responsibility. We look forward to our next symposium in the next few months to share even more vital information with owners.”