HOA Insights: Common Sense for Common Areas

039 | HOA Board Heroes: Special Assessment Success!

February 05, 2024 Hosts: Robert Nordlund, Kevin Davis, Julie Adamen Season 1 Episode 39
HOA Insights: Common Sense for Common Areas
039 | HOA Board Heroes: Special Assessment Success!
Show Notes Transcript Chapter Markers

This week’s HOA Board Hero dealt with 60 crumbling concrete balconies and successfully navigated and managed an HOA special assessment!

✅ Is a Reserve Study right for you? 👉 https://www.reservestudy.com/

This episode, featuring expert insights from Roger Minch, sheds light on successful strategies for managing and overcoming the challenges of special assessments in homeowner associations. When Roger’s association was faced with over 60 crumbling concrete balconies and almost a million dollar special assessment, they navigated the waters calmly and cooly with positive results!

Chapters from today's episode: Special Assessment Success! 

00:00 What Makes HOA Special Assessments Successful
02:09 HOA Board Hero Introduction - Roger Minch
06:24 What led to Roger’s Building’s Special Assessment
09:18 Condo Balcony Repairs & The Special Assessment 
14:00 Ad Break - Association Reserves
14:33 How a Bad Thing can be a Good Thing 
17:12 How Roger’s Board Dealt With the Special Assessment With Owners
26:30 What Happened to the Home Values After the Assessment? 
29:01 Why a Reserve Study is So Important

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Robert Nordlund, PE
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Roger Minch:

This was an immediate, unmistakable problem that was threatening the value of the building. Five people lost use of their balconies, the rest of us could see that that problem was going to spread and not go away. That actually, if you've got something that's that obvious, and that's threatening to your building that really makes doing a special assessment easier. I read a lot about people that try to do 20 year plans and they try to build improvements and so forth and the special assessments, that's a much harder sell.

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Common Sense for Common Areas exists to help all 2 million volunteer board members nationwide have the right information at the right time to make the right decisions for their future. This podcast is sponsored by four companies. They care about board members, association insights and marketplace, association reserves, community financials, and Kevin Davis Insurance Services. You'll find links to their websites and social media in the show notes.

Robert Nordlund:

Welcome back to HOA Insights: Common Sense for Common Areas. I'm Robert Nordlund. I'm here today with a special guest to talk about special assessment success. When there's a big project to do and no money to do it with its special assessment time. There are ways to stumble forward, and there are ways to move forward successfully. Well, this is episode number 39. But before I introduce today's guest expert, I want to encourage everyone to check out episode number 38 Which is great episode with co host Julie Adamen confronting the all too common issue of board dysfunction. To catch those prior episodes, you can listen from our podcast website, www.hoainsights.org. Or watch the podcast from our YouTube channel. To avoid missing episodes, subscribe to this podcast on any of the most popular podcast platforms. And if you have a hot topic, a crazy story or an interesting question you'd like us to address in an upcoming episode. We'd love to hear from you. So leave us a voicemail message at 805-203-3130 or send us an email at podcast@reserve.study.com. While today it's my pleasure to welcome Roger Minch an attorney from North Dakota we learned some important lessons as a condominium board member passing a significant special assessment for a balcony renovation project at his high rise condo association. In again, North Dakota. He shared those lessons learned in November December 2021 issue of CAI is common ground magazine. And that's when we first met. He also wrote to other 2021 articles published on the kiplinger.com news website to address Florida's tragic June 2021 champlain tower south condominium collapse that claimed 98 lives. So we invited Roger as both a board hero and as a subject matter expert. So Roger, welcome to the program.

Roger Minch:

Thank you, Robert.

Robert Nordlund:

Well tell us first off name and location of the association

Roger Minch:

is called Beth Towers. It's in downtown Fargo, North Dakota.

Robert Nordlund:

Fantastic. The towers, how big of a place how many units

Roger Minch:

nine stories above a garage. 64 of the units have six thought had 6000 pound concrete balconies. The first floor didn't have balconies.

Robert Nordlund:

Got it. Now, we've introduced you as an attorney. Do you practice community association law in North Dakota? Yes, I do. Is that like majority or practice? Is that what you're known for? Or is that just one of your areas of expertise?

Roger Minch:

That's one area. I'm mostly known as a creditors rights attorney and bankruptcy cases and commercial litigation.

Robert Nordlund:

So for this issue, you're in addition to being a board member, you are also actually kind of an expert in the field. It's not like you were doing unrelated business practice or something family law. You knew what you were talking about. Yeah. Knew what you're talking about. And are you still a board member?

Roger Minch:

No, I only serve as secretary.

Robert Nordlund:

I explain that I usually think of Secretary being one of the board positions.

Roger Minch:

According to our documents. The President and Vice President have to be board members, the Secretary doesn't and the difference is a board member has got fiduciary responsibilities to run the building, kind of sufficient and adequate way. If you have a secretary that's not a board member, then those duties are limited to keeping accurate books and records taking care of the minutes, giving certain notices and so forth. All those duties are outlined in the recorded documents

Robert Nordlund:

So that's almost like an well, in addition to being a homeowner that elevates you to and perhaps beyond the committee member, you're actually there working with the board performing board like duties, but it's the president, vice president to have the legal responsibility.

Roger Minch:

Yes. And being the Secretary, if you're not a board members is really a good position, because you don't have the fiduciary responsibilities and the weighty responsibilities of board member, but you do give notices, you oftentimes set the agenda by talking to board members, what do you want to have on the on the meeting, so you arranged the agenda, and then you can do a good or a poor job of keeping the minutes. And I tried to do a good job.

Robert Nordlund:

Excellent. One of our early episodes was from a meeting minutes company that is able to do that on behalf of boards and ensure that they get good record of what's going on. I'm reminded of a movie I saw long ago, I think it was my big, fat Greek wedding where the woman of the household was saying something to the effect of I may not be the head of the house, but I'm the neck. And it sounds like the Secretary is the neck is right. Very nice. Okay. Well tell us about the problem that led to this special assessment.

Roger Minch:

Well, our building was originally designed to never be painted. It was concrete, it was meant to always be concrete. It had these 64. A turned out we found out 6000 Pound concrete balconies now

Robert Nordlund:

how, how old of a building are we talking about and what it can mean, (It was built in 1976). 1976...And when did the problem rear its ugly head?

Roger Minch:

About 2013. And I moved into the building in 1978. I've always been either a board member or an officer ever since. And one of the things we did after the building was about 10 years old. We decided we would have a structural audit done every five years. And we did that. And those audits discovered a few problems that we addressed along the way. It was in 2013, we had one of those structural audits disclosed and we were developing, developing a problem with our balconies, the building had been painted. Nobody checked with the architects whether it should have been painted or not. But that included painting the underside of the balconies, and concrete is meant to breathe. And we found out later that once the underside of the balconies were painted, by the way that was done by the developer before the project was turned over to the owners.

Robert Nordlund:

Interesting, So it wasn't some unrelated outside party.

Roger Minch:

No. What had happened was the construction lenders told the developer you're not selling those units quickly enough. If you could sell them or quickly, you could pay off the construction landing. And then we could look at permanent financing. Why don't you consider painting the building, we think they'll help you sell units

Robert Nordlund:

to make it look nice, prettied up.

Roger Minch:

And we found out later that once those balconies were painted, the concrete would no longer breeth. And over time, water would get into the rebar in the concrete balconies. Once rebar starts to rust, it expands, and it will break the surrounding concrete. And then the rebar loses its ability to support the concrete. And by 2010. Probably, this had started our structural engineers notice this in 2013. As a result, their recommendations were we think we can repair these, we'll put this on repair schedule, we'll do five a year, we'll pick the five worse than next year, the five worst the five worst. And we did that until 2016, about early 2017. And the ones that they had repaired in 2014. Repairs were failing. And they just told us we can't prepare these. You're gonna have to just replace all of these out. Yeah, ouch just right.

Robert Nordlund:

Okay, now, I'm spinning in my brain. When I think of painting, it's often a good thing. Like with a wood fence, you want to paint it to protect the underlying wood. But when I'm thinking with concrete, when you paint it, then yes, on one hand, you protect it, boom. When you paint the underside, you're eliminating a moisture from coming out that surface and it's getting stuck there. Right next to that rebar. Is that a fair characterization?

Roger Minch:

That's right, it'll make it look better, but it takes away the permeability of concrete. Concrete is a breathing substance and if it can breathe Water will not get in and stay in the concrete and it won't reach the rebar. But once it's painted, especially on the underside, then it will

Robert Nordlund:

it becomes a bathtub. That's right. And wow, you know, you and I, when we wrap wrap wrap on concrete, it feels solid and impermeable. And if you spill water on it, you wipe it up, but given time and again, if you seal it, moisture will seek and seek and or seep in and it'll become a sponge and wow, a heavy balcony becomes even heavier in addition to the rebar getting less and less strength degenerating. Because that again, accurate? (Exactly right) Interesting. Okay, so you learned about it? Well, good for you good for you as the towers to have a structural engineer coming every five years checking up on things, because that gave you a early start early indication of what the potential problem was. And then you started courageously doing repairs. Now, was that itself a budget breaker to do five a year?

Roger Minch:

No, we could well afford that within our monthly assessments and occasionally using something in our reserve fund. But that was manageable, we could have done five a year forever. If that would have been a proper fix,

Robert Nordlund:

let's see five year forever. If there was 60, that would have been 12 years. So 13 years, that seems like a reasonable cycle to go through. It's not like it would have taken forever you were gonna get through the building and at a reasonable timescale at five per year. And then finally, you learn that what you were doing just wasn't cutting it.

Roger Minch:

First, ones we repaired in 2013. By 2016 2017, it was clear to our engineers that those repairs, were not going to be effective. And they had already solved and started to fail to the point where the city by the way we let them know right away. They came in and they called it embargoed five of the units. They inspected all the balconies and embargoing means that we have to bulk shut 5 of them to make sure nobody could go out on those balconies.

Robert Nordlund:

So like red tape, don't go out in your balcony, that kind of thing.

Roger Minch:

That's right, and then bo;t shut and made sure nobody could go out if even if they wanted to.

Robert Nordlund:

Yikes. Okay, so now you're to a point where homeowners are not able to enjoy a home that they paid for(That's right). So it's no longer just a little minor oh, gee at someone else's problem. And all of a sudden becomes, wow. And happened here and here and here and here. When's it going to happen to my unit. So you're aware it's a bigger problem. And that was when 2002 1016,

Roger Minch:

early 2017, when we discovered that we were going to Well Roger. I want to thank you. And we'll take a quick break have to replace all of these balconies. That does bring up an interesting point. This was an immediate, unmistakable problem that was threatening the value of the building by people lost use of their balconies, the rest of us could see that that problem was going to spread and not go away. That actually if you've got something that's that obvious, and that's threatening to your building that really makes doing a special assessment easier. I read a lot about people that try to do 20 year plans and they try to build improvements and so forth and the special assessments. That's a much harder sell. So it's odd that in a way, the worse your problem is, the easier it is to make a special assessment work here to hear from one of our sponsors, and we'll be right back to hear the second half of his story.

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Robert Nordlund:

We're back will Roger pick up on that tell us how a bad thing can be a good thing.

Roger Minch:

There's no debate over the need to fix the problem as one bang and focuses everybody's attention when I learned from this experience, and I think this is a good shape away for people. I think if you're facing a special assessment, I think the best way to think about it is like this Your problem is not structural. It's not engineering, engineers, and architects can fix anything. Your problem if you're facing a special assessment, believe it or not, as not even financial, if people can see that there's a problem. If they want to pay and they see that their investment or their home is in jeopardy, don't worry about it, they'll figure out how to find the money, you don't need to babysit that process. Your problem is political. And that means that if you've been treating your owners as ignorant nuisances for years, and then you expect them to pay a special assessment, they'll resist that and they'll repay you in kind.

Robert Nordlund:

Whoa, whoa, wait, okay, I know the term of the phrase, they'll repay you in kind, but maybe in this case, we should say repay you in the same way you treated them.

Roger Minch:

That's right. And that term is political capital. And I learned that from a group of managers, I gave a program like this, too. And I explained this whole thing. And then the moderator said, Okay, let's talk among ourselves what you do to build political capital, you have to always have political capital enough. But if you have to make a special assessment, people will be receptive to it and answered for it. And then we use that you constantly Pete, keep people informed, you constantly ask them for advice. In our particular case, we told people, there are going to be meetings with our architect, every Monday morning at 730. While we're doing this project, we expect you to attend these meetings, if you're interested. We want your input. We want your cooperation. We literally killed people with information to the point where somebody at a meeting said, well, Roger, you're the president, you take care of adult keep bothering us with this. Interesting, I never say to myself, Okay, I'll very well do that. You just pay the assessment when it comes. And in fact, the

Robert Nordlund:

Okay good. So you will describe the chemistry at the association. Right about when you were facing that crisis in 2016. Was it an association that was unified with the board had the board been treating the owners as teammates, or was there potentially adversarial situation even to start with,

Roger Minch:

we have enough political capital, Robert, when this problem developed, that we have pretty smooth sailing, it helped an awful lot, that we had had engineers on this problem since 2013. And everyone knew about that, because doing these repairs meant a lot of noise and a lot of dust. That was a hard thing in and of itself. And a lot of people are relieved to find out that we weren't going to be doing that every year, we were going to finally fix the problem. The other thing that helped is that we hired a separate law firm, to make sure that we pursued every conceivable insurance recovery, every conceivable conceivable third party recovery. And we were able to convince people on the basis of those maturity opinions that we had done everything we possibly could to address this problem, identify it early, and then make other kinds of recoveries before we would have to call on the owners on a special assessment. So

Robert Nordlund:

yeah, let me let me stop you there. So you had anticipated questions, and you did your research? Because you knew that they were going to say, Well, have you tried A? Have you tried B, have you tried C? And before you asked for their money, you want to be well prepared? And also, it sounds like you had a great paper trail. So you could say we have tried these things. It's not like I think now someone's going to ask me for a special assessment. They're going to have a lot more success. If they come to me saying, This is what we know. And these are the facts not I think it would be better if

Roger Minch:

if you ask people along the way and in advance, will you help us What ideas do you have? What do you think we missed? That will really maintain and enhance your political capital? But if people get the idea that they're not being involved, they're not being given information? They're being given information late,

Robert Nordlund:

or it's us versus them? Yeah,

Roger Minch:

you lose your political capital in a great big hurry.

Robert Nordlund:

Yeah. Okay. Well, how big of a special assessment are we talking about? We did

Roger Minch:

$17,500 against each of a 64 units that have balconies at the time units in the building was selling for anywhere from 80 to $100,000. So this was going on 20% of the value These units, you

Robert Nordlund:

just saved me pulling out my calculator here. Yeah, so that's a, that's a big deal. So, for someone to say instantly, my unit just got 20% more expensive. That's a scary proposition. And I'm glad that you had kind of prepped the owners that this was going to happen. And, again, maybe a little bit of misfortune, and adversity did work to your advantage, because as they were doing repairs, and I'm presuming that's going to be jackhammering out the spalling, the opening cracks up that's noisy and in high rise, you feel that you hear that? And so yeah, you did have some of these things working to your advantage. So did you give people a choice pay over time, or lump sum? How did that get presented?

Roger Minch:

We didn't do that. And we were quite blunt about that. Okay, no quieter discussion about how forthright we could be about that. But we started telling people, the assessment was due on May one 2017, we had been telling people the fob of for about what the special assessment would be, we had estimates, we were starting to look at bids, we'd hit that number pretty close on the head. And then we built in 10%. If we're going to do a special assessment like this, you only can do it once

Robert Nordlund:

You don't want to double dip.

Roger Minch:

And so everybody knew and we specifically told them in written notices, we're not going to finance this, we're not going to be entering into payment agreements, we're not your banker, you go to your bank, or you figure this out. And we were very blunt about that. I thought too bland. But let me tell you how that worked out. The assessments were due May 1 of 2017. Within a week after that date, we had 54 of the 64 Paid in full $17,500. That's

Robert Nordlund:

a heck of a success. Yeah, there

Roger Minch:

were six more people, we call them the city six. And we help them work out a loan forgiveness arrangements for one of the local savings and loans and the city of Fargo. And they were able to borrow the 17, five on a low interest basis. And then that loan would be forgiven in stages it but he stayed in thirt units. So that took care of six nor so now we got 60 of the 64 of the four that didn't pay and said they wouldn't pay, we ended up filing two assessment liens. Two of the other people eventually did pay from I think social pressure in the building of the two where we had to file assessment liens. telling about the vote, the board's vote to authorize a One of them we ended up collecting from an estate, the poor old fellow died over the course of a year. The other one we collected from a bankruptcy estate, because the bankruptcy lawyer for that fellow didn't file the bankruptcy case within 90 days of when we filed the assessment lien. So we couldn't be avoided and stayed on the unit. And he ended up paying. So thanks to the political capital, we collected every penny of all these assessments. And when the project was all done, we were able to refund a boat, just little over $1,600 to each of the people who would pay the 17. Five, and that number was 10%. Yeah, yeah. And we figured this what our cushion was gonna be. And we told people about that going in. special assessment, and then did that have to be voted on by the ownership? in North Dakota, Robert, I mean, I don't know if it's good or bad, but this is totally the Wild West. Okay. Our condominium law in North Dakota runs about 17 pages long in our century code, including annotated cases of I'd found two cases go to the North Dakota Supreme Court. And the way the law still is in North Dakota even taking into account the charitable Corporations Act, the board of directors and Scott unlimited business judgment discretion to manage the building do special assessments, no requirement under North Dakota law, no required in our documents, that there'll be a vote.

Robert Nordlund:

Interesting. Okay. So when the board said, and I bet there was a lot of wringing your hands, it is time. You just said we're in this you're locked arms. I said we're in this together has to happen. There's no way around this special assessment time. And it was almost as if you got a vote of approval. Because 54 People wrote big checks. You had communicated enough that they are aware enough that 50 More people said yes I meant so even in a state where a vote was required or governing documents were were required again, 54 out of 64. That's a slam dunk win

Roger Minch:

we could have gotten the votes

Robert Nordlund:

if you needed it. Yeah.

Roger Minch:

Really the only misgivings in this process were, there were a few people that wanted us to explore more fully, how much of this? It was almost a million dollar project. And he wanted us to find out how much of that we might have been able to borrow. And we did look at that a little bit. But then it dawned on the lenders, and it dawned on us, how are you going to secure repayment of this loan, say they would have loaned somebody half of $500,000, you're not going to get members of the Board of Managers to get personally guarantee that loan. And from the lender side, what in the world is going to be the collateral, a mortgage on the common areas? or maybe an assignment of the association's right to levy file and collect assessment liens, that's about the most soft, uncertain collateral I can think of. And letters just we're not willing to do that. I've found out since that there are some national lenders that specialize in that kind of lending, right? We're not aware of that we never made that kind of an application. As it turns out, I think everybody in our building is happy that we bit the bullet paid for it, got it done. And that's the end of it.

Robert Nordlund:

Well, let me follow up on that happy because I like a story that has a happy ending. What has happened to the home values at the towers, since the big special assessment project,

Roger Minch:

we've been able to stay off of the bad list where Freddie, Freddie, Fannie Mae and Freddie Mac for Trey, right on article above having the last issue of common ground. So that law allowed us to mean maintain our good standing with all of the lenders in the area. And soon after we had this project finished. All the building values in that building went up about 30 to 40%. They're almost double now from 2018. I had really can't attribute that, to repairing those balconies, although the building looks much better. You can see through the balconies, I don't know why concrete was something attracted to the developer. So some of the increase in value can be attributable to better more modern looking balconies. But I know a big selling point among the real estate agents is that this is a building that has been doing regular structural audits, we have now has an official reserve study, the reserve study is fully funded, the building was able to spend a million dollars in 2017-18, to modernize its balconies, and it was able to spend another $200,000. Since to upgrade all of its old analog elevators. So the real estate agents and the lenders know that there's no deferred maintenance in our building. And I think that accounts for probably half of that increase in value. The rest of it is just general market forces in downtown Fargo.

Robert Nordlund:

Yeah, well, I know that real estate agents farm at their local areas, and associations can see real estate agents as their friend pumped them with good information, pumping with a reminder that the black cloud is gone, this problem was fixed. We are now a freshly you not only fixed a structural problem, but you turn it into an aesthetic increase. And it was nice to hear that that 20% special assessment bounced into a very quick 30% or more boost in property value so quickly, the owners were cash positive. And they a happy ending to that. And I should you say you're still doing the every five year annual structure or every five years structural inspections.

Roger Minch:

We've flipped that over to a reserve study. We're coming up on a favor in the fourth year from doing that and we're fully funded. And in the sixth year or I have ever studied, redone.

Robert Nordlund:

Glad to hear this. I love a story that closes with a happy ending. And Roger, this is just a big lift for you. You and the rest of the board deserve a round of applause and a lot of appreciation for doing what you did. Was there any of that? Or did you just smile when you looked at what units were selling for?

Roger Minch:

We were happy to be able to solve the problem. We were happy that people actually came up with the money to fix the problem. The building is banned all together on management issues ever since. So it's it was a lot of work. But it was a happy outcome. And one other piece of advice to that I would give on a big project like this. My term on the Board of Managers ended on June one of 2018. The assessment remember was due on May one 2017. I didn't quite finish all the construction work during 2017. We had leftover punch list work to do in the spring of 2018. And I was really frustrated with getting that job completely finished. And getting all the bills in and frankly be what work was. I told the general contractor and all the subs, you know, you better get this work done. And you better get your bills in so that they can be paid before June one 2018.

Robert Nordlund:

When I go off the board, and I better finish it up. Very good, a nice a nice deadline to motivate people to get their billing done. I've heard that the kind of restaurant that you want to go to is the one that has a misspelled sign because you know their focus is in the kitchen, not on the sign. And the builders. Contractor contractors may be really good at fixing buildings, but they may be slow on their billing the admin side of things, Roger, absolutely fascinating and want to thank you for joining us here on the program. To our audience, if you'd like to get in touch with Roger for a follow up question you can reach Rogerminch@serklandlaw that's s e r k l a n d law.com. Or you can see him professionally from the Serkland Law website, serklandlaw.com. Well, we hope you learned some HOA insights from today's program to help bring common sense to your common areas. We look forward to having you join us for another great episode next week.

Announcer:

You been listening to HOA Insights: Common Sense for Common Areas, you can listen to the show on our podcast website, Hoainsights.org, or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you like the show and want to support the work we do, you can do so in a number of ways. The most important thing that you can do is engage in the conversation. leave a question in the comment section on our YouTube videos. You can also email your questions or voice memos to podcast@reservestudy.com Or leave us a voicemail at 805-203-3130. If you gained any insights from the show, please do us a HUGE favor by sharing the show with other board members that you know. You can also support us by supporting the brands that support this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You'll want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light Video & Marketing. With Stoke Light on your team. You will reach more customers with marketing expertise that inspires action. See the shownotes to connect with Stoke Light

What Makes HOA Special Assessments Successful
HOA Board Hero Introduction - Roger Minch
What led to Roger’s Building’s Special Assessment
Condo Balcony Repairs & The Special Assessment
Ad Break - Association Reserves
How a Bad Thing can be a Good Thing
How Roger’s Board Dealt With the Special Assessment With Owners
What Happened to the Home Values After the Assessment?