Condo assessments are breaking point for some

Every month for the past five years, Catherine Johnstone faithfully paid the monthly home-owner-association dues for her two-bedroom condominium in Virginia Beach.

Johnstone's monthly payments alone add up to nearly $9,000 over the five years. She assumed a portion would be held in reserve in the event any major renovations were needed at River Cove Point, her community, situated on the banks of the Lynnhaven River's Eastern Branch.

In April, however, the condominium association sent letters to homeowners saying that a major renovation was needed at the 138-unit complex, built nearly three decades ago. The community board wanted to have about $2 million of work done to replace siding on the buildings and repair wood structures that had been damaged by rainwater.

Each homeowner would be required to pay a special assessment ranging from $12,000 to $15,000, the letter stated. Home-owners would have just three months to start making payments.

A special assessment is a common method used by condo boards, co-ops or home-owner associations to pay for expenses not provided for in the annual budget. The tactic also is frequently the subject of much contention between members of the community and a source of angst for individual home-owners who must come up with the money.

The Select Group Inc., a Virginia Beach-based firm hired to handle the day-to-day operations of River Cove Point, sent several letters to home-owners explaining that city code enforcement officials had cited the community and threatened "strong legal repercussions" if the buildings weren't brought up to code.

The firm encouraged home-owners to refinance their condos or take out a home equity line of credit to pay for the special assessment.

Finding $13,000 tucked away somewhere is a difficult proposition for Johnstone. The $660 monthly mortgage payment was hard enough for the 51-year-old single mother, who was laid off recently from a nearby T.J. Maxx.

"This couldn't come at a worse time, with the way the economy is," Johnstone said. "I called several banks to try to get a loan, but they turned me down. One of the neighbors told me God will take care of it. Don't get me wrong, I believe in God, but God's not going to give me $15,000."

After she missed the initial installment of $4,057 due July 10, The Select Group dispatched a letter threatening legal action against Johnstone if she failed to pay. Ultimately, the condo association could foreclose on her property.

"I couldn't understand where the money I've been paying every month went," she said.

Johnstone is looking for a job but said she and her daughter Michelle, 16, might have to move in with her parents if she cannot find the money.

Complaints from home-owners about special assessments are somewhat common, said Heather S. Gillespie, ombudsman at the Common Interest Community Board in Richmond, a state office created to help settle disputes between associations and condo owners.

"If I lived in a condominium and the board said I'd need to pay $15,000 in three months for a special assessment, I'd have a stroke," Gillespie said. "This is a tough, tough time. Many people don't have jobs, and they're just trying to make ends meet. This can be devastating."

Virginia law requires that condo communities have a study of their reserves done every five years. The associations are tasked with setting aside money in case of any unexpected expenses, Gillespie said. In many cases, however, associations don't keep enough in reserve.

"If a condominium is adhering to the law and is having the reserve studies done, and they're looking forward and taking into account some sort of major renovation needed in the future," the need for a special assessment should be rare, Gillespie said.

At River Cove, the association's annual budget covers only normal building maintenance, legal advice and payment for the management company, said Jeanne Lauer, the association's attorney. Last year, the community's annual budget was just shy of $327,000.

Most condo communities have the option of taking out a loan to pay for repairs and renovations, avoiding the need of a special assessment.

River Cove's governing documents, however, did not give the condo association the power to apply for a loan, Lauer said. Last fall, the board tried to change the rules but did not get enough homeowner support. So they moved forward with the special assessment.

"When a property goes up for sale, you have to disclose that Virginia Beach code enforcement says this place is uninhabitable," Lauer said. "Pretty soon, you're going to see property values go down."

Lauer said it's unlikely that the association would move to foreclose on any homeowners who don't pay the assessment.

"It's a terrible time to pay out this sort of money, and we didn't ask for the timing certainly," Lauer said. "The bottom line is, the work had to be done."

Code enforcement officials inspected the community in February and cited the buildings for having peeling paint, rotting siding boards and rusted fireplace caps, said Wells Freed, the administrator for the city's housing preservation office. The office's inspector also found some buildings where staircases had pulled away from the exterior walls.

In several letters this year, The Select Group told home-owners that renovations were urgent and, as result of the citations, could not be delayed.

While home-owner associations are responsible for keeping buildings up to code, punishment for being out of compliance typically amounts to a few hundred dollars in fines for the first offense, Freed said.

"The Select Group had already started working on a plan to bring things up to code before code enforcement ever inspected the community," Freed said.

In a bid to fight the special assessment, several home-owners there hired Norfolk attorney Scott Konikoff, who declined to comment or offer any insight into what recourse the home-owners might have.

Gillespie said there is little home-owners can do to avoid a special assessment without banding together and calling a special meeting within 60 days of the notification.

"If I would ever say something to people who move into these associations, they need to know that these things could happen," Gillespie said. "It needs to be part of the thought process when they're buying."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com