02.28.2024 | Webcasts & Podcasts

Right Size Your Condominium | 2.28.24 | Part 3

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You’re doing it this is what you should be doing and if they don’t listen to you.

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It’s sort of it becomes the boards problem, which I, you know, we don’t want to have happen.

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So I think the best thing you could do is reiterate the ideas, because we know about problems.

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We have to do something, to fix them. I think that’s the biggest thing a property manager can do in the instance, even if a board doesn’t listen to it.

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Constantly, you know, suggest to, you know, look at other ways or we really need to do this.

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We gotta figure out a way, to do something here or else we could be in big trouble.

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Thank you. Alright, we have another question on the topic of reserves. We have a few board members that feel the reserve can only be used for large scale reserve studies.

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Others feel they should be used for emergencies like storm damage, uncovered insurance deductibles. All common area impact.

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What do you think?

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Well, let me touch on this. I think that all the years I observed the pot of money effect.

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Where there is a certain amount of money in reserves, whether it’s 500,000 or maybe a million dollars.

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And to the average person that sounds like a lot of money. But then you turn around and do the math at this 350 homes involved and this X amount of dollars to handle problems and issues with those 350 homes.

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So I think that the people need to stand back and accept the fact. And again, it’s a cold hot fact.

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The reserve fund is the reserve fund. It’s not gonna take care of excess snow plowing that wasn’t anticipated when the blizzard of 2025 blows through New England issues like that and it’s not as much money as people think it is when they initially react to it.

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So I would encourage people just do run some simple math, okay? How old is your property?

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How old are the elements at the property? What kind of money is in reserves right now? What kind of money is going in reserves?

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You know, toy with the numbers a little bit and I use the word toy very carefully just to get a feel for okay do we have literally $500 per house.

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To handle roofing. Siding, decks. But sidewalks, the driveways, etc.

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So yeah, the math. Can get skewed because of this quote pot of money.

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Great. Thank you. So here’s a question about financing. What are you currently seeing for association financing plans?

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Say, for example, 250,000 500,000 or 1.5 million. What’s the annual duration of loans that you’re currently seeing and what about monthly payment increases to account for these loans?

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So it’s a great question. Really sort of drilling into the, how do we pay for it, piece of the puzzle.

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So I did, I did, just put up a Couple of quick scenarios here just to ground the the answer.

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If you take, $250,000. At 6% interest. With a 10 year loan.

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That’s $33,000 plus a year in in debt service. If there were 50 owners in that community.

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Creating an assumption. On a monthly basis, that’s an increase to the fees of $56 and 61 cents.

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Now, if you just simply change the, the 10 years to 30 years. Which is the far end of the spectrum that $56 reduces down to $30.

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If you change the 250,000 to 1.5 million. And you leave it at 30 years.

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That 36 that 36 h becomes a hundred $81. So This, this is, math that can be done pretty quickly and pretty easily as part of your planning process.

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And the financing represents one piece of the puzzle. Money coming from the bank. Another piece is assessing owners.

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Another piece is increasing fees and accumulating. Thank you. For either expenses or to cover. A debt service component.

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The one.

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The one last sort of thing is that oftentimes people will do communities will look at combinations of those 3 things so it’s not just one size fits all you know you need to finance or you need to assess or need to raise fees.

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But you, you can use. A blended approach. Then to finish any time you do any kind of work You have to ask the question that sits on the other side of the coin, which is, are any costs being reduced?

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As a result of doing this work. So going back to my original example of that $56 increase.

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Are you then potentially eliminating an operating expense? Or another capital expense. So that $56 is adjusted downward because of a savings associated with it.

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Great. So to add on to that, Eric, do you do you recommend that those loan payments be added?

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Is an assessment or built in to the monthly fee.

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Well, again, I think that’s a community by community. You know, approach the I would say the vast majority of communities that that we work with.

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Look at what we would call a ramped fee increase. As the most as the least disruptive, financially disruptive approach.

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For funding a large project. So looking at fees that let’s say we’re at $500.

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A month today, maybe increasing fees. $50 a month. Each year. So one year it’s 500 the next year it’s 5 50 the next year 600 and so on.

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So that the fee increase keeps pace. With the debt service requirement. Some sort of ramp like that. Tends to be the least disruptive that said there are communities we work with that say let’s rip off the band-aid and everybody write a check.

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And and let’s just put this behind us. I would say that the one advantage of financing is it allows for work to be done today.

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And then paid for over time as the work. As the finished work is enjoyed by. The people living in the homes.

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So that that way it’s the cost of any kind of restoration work is shared. Evenly out in the future for the people that are benefiting from the, from the work.

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Great. Thank you. So Norm, we’ve had a request, hoping you can give us a bit of a refresh on the Massachusetts condo reserve obligations, specifically related to the 2 reserve types.

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So with Massachusetts, there’s just a requirement to have an operating reserve account. Interestingly with respect to it, Massachusetts is one of 12 states.

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They actually have a statutory reserve requirement. The requirement you know I think we talked about touched on this and the first webinar all it says that you have to have adequate reserves which really Is it necessarily helpful?

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You know, the 2 states that actually do have requirements are similar to the requirements. Bye, Freddie and Fannie, which, which are a 10% requirement.

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So that would be the only actual number requirement we’ve seen. In the country that puts a specific amount.

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To go ahead but I do think there’s some information out there suggesting that in the very near future Freddie and Fannie are gonna be looking for more like a 20 to 25% of your operating to become your reserve account, but right now, Massachusetts says adequate.

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And I think the way you get to adequate is you look. Specifically for the needs of your associations, which is just done by the steps that we’ve talked about.

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Over the course of these 3 webinars in terms of having reserves that he’s done, looking at the best way to to reach the results or accomplish the result or the suggestions of the reserve studies.

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How to fund it and how to put forth and put together an actionable plan.

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Right. Okay, another question kind of dealing with more of the social or alignment aspect of our conversation.

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Any advice on how we can deal with fellow board members that think they know better than who we hired to handle the project?

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So those experts like engineers and contractors.

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Yeah, I think it’s gonna vary on the thing. You know, it’s always funny that, you know, the worst sport members for me, sometimes there are lawyers, or sometimes they’re the best board members and the worst or best board members can also be in this situation is our engineers or architects because sometimes They know just the right amount to be helpful or to be unhelpful.

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And I think it’s just a process. It’s, it’s unfortunately, there’s no.

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Perfect solution here. It’s evaluating each. And each person in each moment. And try to come up with a plan.

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And I hate that it’s not like really a perfect dancer, but you have to sort of know that person and you know what are your requirements to pass on?

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Do you need unanimous board approval? Well, then you had to work. Do you need? You know.

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2 out of 3, 4 to 5, 3 out of 5. Well, then maybe you just work on the other board members.

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And look to pass it. It’s not as. And I think everybody would like everything to be unanimous decisions by the board, but that’s not how most condominiums are set up.

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So. If it comes to that, you can get 3 of 5. I would suggest that’s the route you have to take.

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Oh, I would add to that that. I think sometimes the work that is done. Surrounding the common property is perceived as being very complicated.

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Because it’s large in terms of the numbers. Ralph, I think said it really well.

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He used the word common sense twice. Like in his in his in his conversation it was you know, common sense and more common sense.

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I think there’s a there’s a sanity check here where Is common sense being used? You know, if there is water infiltration into your buildings, that is a problem.

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Whether or not it’s dripping into someone’s home or not. Common sense would tell you you don’t want water in the wall cavity of your building.

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We’ve heard people say that that’s okay as long as it doesn’t drip into the doesn’t come all the way into the house.

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So I would I would be an advocate for Just keep pounding on the common sense button. And make sure that.

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That your that you’re passing that sanity check.

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I like that common sense button. Where can I get one of those? Is that like the easy button that you anyway?

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I think, yeah, I think Staples had one for a while. Okay.

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Yeah, it’s a great idea. Somebody somebody market that. Okay, another question. Our reserve study market that.

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Okay. Another question. Our reserve study calculates what needs to be deposited into reserves. Okay, another question.

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Our reserve study calculates what needs to be deposited into reserves, but these numbers are way beyond what unit owners in our area can pay.

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So how do you suggest we navigate this challenge?

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Yeah, that this is where, I’ll start, I’m sure. Norman and Ralph have comment here.

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This I’ll be simple. This is where financing can be a really valuable tool. If you’re reserving money to pay cash, for work to be done.

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That means you have to have all the money. Before you can do the work, which means there’s a greater burden on the community than the owners.

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If you finance the work. Over the life expectancy of the work so you’re not compromising.

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You know, financing something that you should that shouldn’t be financed. If something’s gonna last 10 years and you finance it 10 years, you then decrease the burden.

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You increase the total cost because there’s interest. But you decrease the burden on a month-to-month basis to the owners.

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And that can allow you to get the the work done.

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Yeah, and I agree with that completely. This is when some kind of, financing plan would have to come into play to help the community afford that.

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Or if they need to get done.

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So then.

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Yeah, I’ve seen major changes in the terms of these loans. If we go back in time, 5 years, and the terms of these loans, if we go back in time, 5 years was kind of, if we go back in time, 5 years was kind of the standard if an association, 5 years was kind of the standard if an association wanted to borrow money as opposed to just hitting everyone with a specialist husband.

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Now going out 30 years. Sounds kind of daunting, but Eric makes the point. It makes perfect sense.

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So you’re going to improve the quality of your home and enjoy that improvement and yes it’s going to cost money but the numbers of they can be disputable to the decimal point, but the numbers are real.

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The projects are real. They have to get done and. That we can’t do it, it can’t hold the day.

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Yeah, your fiduciary responsibility with the board, but even as a unit owner, you have to realize that this work needs to get done.

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Let’s have intelligent discussions about how to get it done. Okay, that makes sense knowing that It’s going to be a an expensive deal.

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Eric, maybe just a bit of a part 2 to that previous question, that you could weigh in on.

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Is it true that collecting an assessment is going to be more difficult than collecting an increased fee.

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Well, this again is, this is such a, it’s a interesting challenge. Often times, boards will say, well, let’s just assess the owners.

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$10,000, let’s say. And, and when exploring options, if there’s another option to finance, to finance some work that needs to be done.

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The other choice the board might have to make is fees go up by a hundred dollars. I have been in many conversations.

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Where the board will say, we can’t have a. Fee increase of a hundred dollars. So therefore, we’re going to assess the owners $10,000.

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I have it I have a tough time reconciling that that position it’d feel it.

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I think when we actually are polling owners and talking with owners. It is overwhelmingly weighted to the side that.

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Incremental increases in the kind of minimum fees. In the 100 $200 $300 range whatever the number is is easier to manage.

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Than a one lump sum cost. I will say all of that with the stipulation that every community is different and there are times when either.

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Approach might be more appropriate. Then the other.

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And to add that from a legal perspective, if we’re looking at purely. Collecting it.

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I don’t know that it would be harder. To collect one versus the other, you would follow this, that sort of the statutory process if somebody is behind and at a special assessment.

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And could look to established a lean with respect to the. The special assessment much like you could with a regular common area fees.

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You know, somebody may try to make the argument about priority. Which I don’t know how successful that would really be, but that there would be in terms of collecting it, I think you’d have a pretty strong legal argument in terms of.

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What you need to do that if you had to go down that road, I don’t know that it would really change much and you know It’d be very difficult, I think, for somebody to.

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Effectively dispute any charge and even if they did they’d have to pay it. Initially and then disputed under protest.

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So it’s a complicated process. And I think Eric did a good job covering the practical aspects of it there, but.

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From a pure legal collection standpoint, I don’t know that there’d be a huge difference.

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Thank you.

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So as board members, how do we ensure that what we learn during our term is carried out by the next group?

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And how about when the community revolts to increased fees or the need for an assessment?

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So and this is a big problem so in the way the situation this system works is that once you’re elected It’s the bore whose in control of maintaining your parent and place in common areas.

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So at that point in time, from the moment you’re on the board to the moment you’re off the board you get to do what you want to do and the owners can’t actually challenge you unless they can vote you off the board.

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So that’s sort of an important thing to keep in mind. With the concerns of revolting. I think it’s better to do this harmoniously.

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But you do, you are the person in power here with the only ability to make these decisions. Now, how to keep it is sort of what we talked a little bit earlier.

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I think you have to be is open. As you can, there’s certain areas that we could discuss more at some other time.

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But yeah, I don’t think you want to be completely open on, but in terms of financing everything else, you have to be open.

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Now, when it comes to a change in board. The way I would look at it and for me it’s always gonna go back to.

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Sort of a liability issue is. The board has knowledge when the board has knowledge. And if the members of that board change the knowledge that the board has.

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Doesn’t change. So once you as a current board have this information, what I would suggest you document it, you record it, you make sure it’s available for the new board.

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Because whether that they want to do it or not, it’s going to be their call. But if you create the record and show that it needs to be done, you’re again putting the burden on them to hey, Get somebody else to come up with a different opinion or you need to do this work or potentially suffer some very serious consequences for your failure to do so.

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It’s one of the hardest decisions or hardest aspects of this is navigating how you do that.

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But I will say that the courts have specifically said that if you don’t like a common area maintenance assessment.

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You don’t get to challenge the assessment. Your opportunity to change this is through way of the vote and by voting the board in result.

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So once you’re in, you’re in. But that’s why you sort of have to proceed with.

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The openness that we’ve suggested so far.

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What another thing that can help is just if you have a plan and the plan is is actively part of the board’s, monthly meetings, annual meetings.

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Then the plan can survive. Board transition and new board members come in are read on to the plan. They may have some influence on changing that plan.

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At least it’s a stake in the ground that serves as a starting point for new board members.

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Great. Thank you. I think we have time for just one more question and then we’ll move on to wrap up.

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The question is, is it true that if a homeowner files bankruptcy and loses their home, the bank is responsible to pay the condo fees but not special assessments or supplemental assessments.

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So it would it would depend. Every situation is a little different. You would have to go forward with the steps to create.

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The priority lean and if you had that on assessments You would have an argument to get 6 months priority over the lean.

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Or anything in the bank. Anything beyond that, you wouldn’t get and it would sort of be a case by case scenario.

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Planning, you know, how the assessments were issued, how any payments would have come in. And whether or not the appropriate steps were taken to meet the statutory criteria.

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To put together the super lane.

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Okay. Thank you. All right, so that’s gonna wrap up our questions for today and one again want to thank everyone for joining us on the journey.

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What we really want to leave you with after these 3 sessions is that hope, as Eric said, is definitely not a substitute for a proper plan.

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And given what is at stake here, you really can’t leave this to hope or chance. So it’s worth the effort.

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Of going through this process to plan for something that really has the power to positively change your community’s experience and we thank you wholeheartedly for understanding that and for granting us.

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The time to discuss it with you. Please look for future webinars from us. We are committed to ongoing opportunities to expand everybody’s learning, including our own.

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Please help us tailor these future efforts to you by taking a moment. We’re gonna put a quick poll up to help us understand what types of information would be valuable for you to learn about.

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There we go, there’s the poll. So if you could just take a moment and help us out by answering these quick questions.

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And then as you’re doing that, I will just say that if after this series you’re feel that you’re ready to move forward in creating a plan to right-size your fee.

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And you feel like you would benefit from expert help in working through that process. We are always available. Please make note of our contact information on the slide and of course we will be doing email follow-up as well.

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So you’ll have that way to reach out to us. If you would like.

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But just, Alison, thank you for, for, leading. This process.

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It was really. It was really fun and informative from from from our perspective as well. We really appreciate it.

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Absolutely, thank you very much.

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Thank you.

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Alright. With that, I believe we are set to conclude right on time. Thank you everyone for joining us.

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Have a great rest of your day.

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Thanks everyone.



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