The collapse of Champlain Towers South in Surfside, Florida, in June 2021 resulted in a terrible and tragic loss of life.
Although it pales in comparison to the deaths of 98 people, the loss of property also was substantial. And while this catastrophe and the loss of human life is unusual, much of what went wrong in Surfside is being played out in other condominium associations around the country.
Things like poor management by board personnel in condominium associations, opaque condo laws, a lack of disclosure to buyers, and substandard finances are commonplace. And all of these factors are precisely what led to the Surfside disaster. (These also are issues for warrantable condos, which are properties that can be purchased using a conventional loan backed by the government-sponsored enterprises or a government loan.) Mortgage lenders and their insurers must wake up and actually underwrite a condo association before granting or insuring loans within them. Originators will need to understand that tighter underwriting standards may be part of the equation of condominium financing in the future.
Insufficient reserves
For starters, the monthly dues that accompany condominium ownership are almost entirely an illusion. Standard assessments for condos are actually much like a negatively amortized mortgage — you’re allowed to make a low monthly payment, but the accruing deficiency is being added to your account on the back end.