Insurance news and information

The news out of Miami Beach is bleak – in July, a prestigious condo association, facing a high number of unit owners owing back fees, a shaky recreational lease, and $1 million plus in claims from unsecured creditors, sought Chapter 11 protection. What seems like an isolated case of bad management combined with bad timing is causing numerous shock waves in the condo association industry. For entirely too many other condo associations, this perfect storm is presenting itself and there seems to be little condo associations can do to change the forecast.

Property values since the filing have not seen much, if any, relief. Moreover, unit owners who bought when the values were high (and let’s face it, bought unwisely, outpacing perhaps their ability to pay back) are now seeing no reason to continue paying an unaffordable mortgage and the attached condo fees when their return on investment is not just negated, but a punishment. Some condo associations are facing what seems like their only option.

While Chapter 11 could allow your association to regroup, consider other options first. For example, I mentioned in this blog in the past, the possibility of associations renting units as a way to recapture lost fees. In some cases, rentals could be a welcome relief to cash-strained condo associations.

 Another possibility is to work with your creditors and contractors to perhaps decrease your bills or arrange for a payment schedule that allows the condo association to pay back the debt while still maintaining its operating budget.

 If Chapter 11 is imminent, talk with your legal counsel to formulate an exit strategy. Assess the risks of filing, and build a plan for emerging from protection that takes into account the real estate market, your current operating structure, and alternatives that can help you avoid future liquidity problems.

 Also talk with your insurance broker to determine an insurance package that covers any changes in operational structure. It’s not advisable to lower coverage limits to avoid higher premiums – on the contrary, in financially strapped times, condo associations need the additional insurance to help pay for property risks that could, if not covered, devastate the bottom line.

 Flickr photo credit: ThePresidentOfCuba