Toronto Municipality: The Big Tax Loser with a Condo Bubble Burst

While the biggest losers in a Toronto condominium bubble collapse would be the owners of the property – there will be fallout to other stake holders (looking to the US for clear examples) including banks, federal insurance programs, and the condominium complexes (abandoned units which don’t pay their condominium fees).

But owners that decide to simply bunker down and hold on to their properties until they rise once again will face an additional burden for their trouble: higher taxes.

Toronto has a Municipal Land Transfer Tax (MLTT) – on top on the provincial land transfer tax – which accounts to about 300 million dollars a year. This tax takes place when a property changes ownership. For a cost example, on the average cost of a condo ($369,892 – Toronto Real Estate Board) the Toronto MLTT works out to $3074.52.

If property prices fall 20% the drop in city taxes isn’t the same because the rate varies based on the price of the property. This is important to realize when the cost of detached homes in Toronto averaged $650,147, and the blended value of all property types  in Toronto averaged $517,556 – a 20% reduction in property value would result in a 34% reduction in the MLTT – or about $105 million in reduced revenue for the city.

A collapsed bubble market coupled with a MLTT will result in even further loss in property values. It will be bad enough when values naturally drop in a bubble, but with Toronto scrambling to make up 100+ million in taxes, there will be dramatic raises in property tax (or other service costs) that will continue to put a downward pressure on housing values.

People who hold on to under-water equity homes will get punished for riding out the loss with new and greater taxes that were previously funded by an addiction to the MLTT.

I’m not a big fan of MLTT – I much prefer a fair market taxation rate (which is nice – more expensive properties pay more taxes) as a single, primary, tool of municipal taxation. The MLTT seems too variable, too addictive in certain markets, and especially too difficult to deal with when a municipality has to go cold turkey on a collapsed housing bubble.

When Considering a Condominium Purchase, Check How Long the President Has Ruled the Roost

If you are looking for a condominium that you’ll feel comfortable with, check how long the current board has been in power. If the board doesn’t turn over, it’s the same names year after year, then add additional caution when purchasing in the condominium or HOA.

I’ve read, and had some personal experience, about too many “lifer presidents” (an example here) that over time begin to treat the board as their exclusive play grounds. Where most elected bodies recognize the threat to good governance elected lifers create – even the President of the United States has term limits – no such measures exist for community associations.

The risk is, and it seems to come to fruition, that over a period of time the basic principles of the board get eroded.

Take for example the board of President Lorraine Walsh, who has held her title for over 20 years at the Deveonwood, Hercules California, condominium. According to one resident the board hasn’t held an election since 2005. Further, though there is a vacancy on the current board and an owner volunteered to fill it till next election – the current board voted down the appointment 4 to 0.

Other shenanigans appear to be happening there as well: holding in camera executive sessions in the middle of public meetings. That’s clearly a method to shut down the meetings.

Often long serving boards tend to use fining as a heavy handed method to enforce compliance, or threaten owners financially if they raise trouble. For the Deveonwood, first time violations carry $350 fines and have been handed out for improper window coverings and poor garden pot locations.

Sometimes I wonder if the property management firms hired by these long term boards are somewhat responsible for the condominium’s or HOA’s decline. If there really hasn’t been an election since 2005 the property management company should resign or make public notice that the board is failing to abide by all rule and regulations. The problem is management companies can fear failing to comply with the board will result in a non-renewed contract. It’s hard to protest the board that pays you. For the Deveonwood, one owner appears to have asked for the record of past elections to confirm when and how the last elections were held, and the management company denied to fill the request.

Condominiums are great places to live, but like any organization they benefit deeply from a regular turnover of the board, and a rotation of the roles. There is nothing scared or amazingly difficult about being on a board, and normally a management company will ensure all the i’s are dotted and the t’s crossed. I have yet to see a new board, with none of the old guard remaining, mess up a community.

Owner to Owner Intimidation Must Be Responded To Immediately By a Board

Painting “Gay a*****e” on a person’s door is downright rude. But in a condominium community it’s significantly wrong. Publicly attacking a person in this manner stabs at the roots of trying to create an inclusive, functional, community.

It not only acts as an attempt to intimidate the owner, it’s a public statement that directly influences others owners to perform the same action, or become supportive of it. Seriously.

Setting aside all the work on advertising and the use of messaging, there’s a pretty famous test called the Milgram experiment which shows that people who see someone perform an action, even if they find that action harmful to another human being, would perform the same action (in Milgram’s case it was applying powerful electric shocks to another person) more often than a person who has no example of the action. In essence, people are way more willing to do things they are personally uncomfortable with (even harmful) if they have first had experience of the act.

So by publically painting the slogan on, in this case James Burns’ door, the painter not only attempts to intimidate James, but hopes to receive community support to repeat or increase the severity attack on James. Even implicit support (nobody objecting) creates the feedback needed by the painter.

Thankfully at least one other member of the condominium community objects to the vandalism. Mr. Burns received a poster that was hung on the door with statements including “We advocate zero-tolerance for hate crimes” and “heart, caring, helpful, kind.”

That’s freaking awesome. It’s the “backfire” that’s required to nip owner on owner persecution before it grows. With only 66 units in the “upscale” complex (Zillow shows unit prices at about 440k at the moment), the management and board should immediately follow up with letters to all the owners, postings in the building, and a letter to Mr. Burns that state any attack on an owner is fully condemned by the condominium corporation. The communication should not only include positive statements that people of all walks and cultures are welcome at the Copley Court condominiums, Braircliff Manor NY, but person or persons found responsible for the act will be sanctioned to the maximum allowance of the bylaws.

A home, is a home, is a home. And the corporation is always in the role to ensure that all people can enjoy and feel comfortable within their residence, and by extension the common property.

Sadly – at the time of this article neither the board nor property manager has contacted Mr. Burns about this.  Time for the board to step up to the plate ensure a positive community. The longer the board waits to respond, the more implicit support they give the evil doer.

Twin Lakes HOA: Killing for Skittles

HOA Retreat at Twin Lakes, Florida, is about to be owned. And by owned, I mean sued and found responsible for the killing of 17 year old Trayvon Martin. Every owner in the Retreat at Twin Lakes HOA should get ready to open their pocketbook.

Briefly, for those not familiar with the case – HOA Block Watch captain George Zimmerman shot to death Trayvon while the boy was returning to his residence after purchasing Skittles and an ice tea. George Zimmerman claims self defense, even though he chased the boy after the police told him not to, and the deadliest thing Trayvon had on him was 2.17oz of tasty rainbow.

Here’s why the HOA is about to pay out a whole lot of cash:

1. Mr. Zimmerman was performing an activity authorized and backed by the HOA– performing the duties of Block Watch within the neighbourhood. An HOA newsletter confirms this role in the community.
2. The HOA, in backing Mr. Zimmerman as a Captain, authenticates a person who had been charged in 2005 for battery of a police offer, and had previously a restraining order filed against him.
3. Mr. Zimmerman failed to conform to any of the neighbourhood watch mandated training. Block watch clearly indicates that watch members are there to observe only, and never confront suspicious persons. They are “eyes and ears only”.
4. Mr. Zimmerman was recorded actively chasing Trayvon while on the phone with 911 (audio of call). The 911 operator also indicated that this action was unnecessary. This was definitely an act to confront Trayvon.
5. While carrying a gun is not illegal in this situation, neighbourhood watch members are not permitted to carry firearms.
6. Mr. Zimmerman made 46 calls to 911 since the beginning of 2011 to report disturbances, break-ins, windows left open and other incidents. Not only is it reported that he was out on his rounds for the watch, it is reasonable to assume as this encounter also started with a 911 to report a suspicious person, he was operating as a neighbourhood watch member as he was the 46 other times.

It’s a pretty simple line to draw the HOA as responsible for failing to maintain the required screening and standards required of their volunteers. Unlike a criminal prosecution, a civil case needs significantly less burden of proof or certainty. It is well documented that a person found innocent of a crime may still face significant monetary loss in a civil court. In this case it won’t be a person found liable in civil court, but the HOA.

I have said before that the Block Watch program is a phenomenal program, and every condominium and HOA that faces a crime issue should operate one. The Block Watch program has operated for over 50 years with astounding success. I still stand by the success.

The issue is an HOA must take the steps required. A formal relationship must be made between the community and local law enforcement. All members of the neighborhood watch must attend training – both at the beginning and ongoing. The HOA needs to create, back, and act on the mission statement: “eyes and ears only” – and repeat that message to the volunteers and the community constantly.

Importantly, the HOA needs to have a firm, written, commitment from each volunteer that they will abide by all the recommendations and requirements of both the national neighborhood watch program and local police authority.

And seriously, if this event makes you afraid to have a neighborhood watch – don’t be. Just stick to the program and enforce a role of observation only. That approach works most awesomely. A neighborhood watch that observes only, and doesn’t carry weapons, is both safe to themselves, safe to the community, and safe to 17 year olds coming home with a bit of ice tea and candy.

Condominium Board Fines Resident $4500+ for Flowers

I don’t know if Kimberly Bois, of the Portsmouth’s Atlantic Pointe condominiums, New Hampshire, is the nefarious evil doer her condominium board makes her out to be. I mean, if the board doesn’t stop her green thumb, perennial planting, capers – who knows what seeds of chaos and tendrils of civil unrest she may cause to root in her neighbourhood.

Seriously though, the specific perennials that she’s planted (daisies, irises, lavender, hydrangeas and tulips) may be counter to the by-laws and she may very well have to dig them up. I indicate specific perennials, because this sales video shows numerous colourful swaths of flowers when tooling through the condominium complex. There definitely are flowers there.

What I very much object to, and I think Kimberly has a leg to stand on, is the overbearing and unreasonable process of fining that is going on. On 24 October 2011 the board started fining $25/day, and has since increased it to $50/day.

That is completely unreasonable, and a great example of a condominium board – being judge, jury and executioner – attempting to financially bludgeon an owner into cowed submission. I very much think that Ms. Bois should be legally refuting all demands from the board, and use that in front of every judge as a means to be excluded from any judgement against her.

Boards have a duty and a responsibility to act reasonable, especially given the fact they act as the sole body to enforce and punish for condominium by-law infractions. A board failing to respect the powers they have been granted (and that’s not the power to cudgel owners) needs to be rapped on the wrist, turned around, and sent on their merry way.

It’s especially important, as many boards are filled with “regular joes” who, though have the best intentions, fail to act outside of personal emotion and vendetta. There are significantly too many complaints about the mismanagement of board power. Colorado Division of Real Estate recently found:

What we discovered was that the complaints we received primarily involved the board of director’s failure to follow corporate governance rules and procedures of the HOA; the transparency of the board of directors, particularly as it related to the finances of the HOA; and harassment and bullying of homeowners by the board of directors and management company by arbitrary fining, preclusion from providing input into the associations’ affairs, and verbal harassment.

Ahh, that last point is specifically applicable to this situation. The inordinate and unreasonableness of the fine Ms. Bios has received shows it.

The board needs to get their feelings and their actions pruned.

Crime Not Related To Living In Condominiums

When doing research for this blog, and on condominium in general, I often come across news stories linking violence and condominiums:  Inside a condominium unit they found a dead man, breaking into a unit at Arbor Woods Condominium Homes … He fatally shot his father-in-law, and The victim … was found in the charred remains of his condominium.

Almost daily, news feeds I subscribe to have at least one (the above three were taken from a single day’s feed) violent condominium story. Over time it makes me wonder if there is a higher or significant level of crime related to multi-unit housing compared to detached or low density.

Statistics on crime rates in/related to condominiums are next to non-existent. Instead I’ve relied upon some studies that look at crime and population density, along with other factors. Indeed, it’s hard to isolate the concept of crime in condominium because high-density can be, and exists, in almost every strata of society, and every location.

Starting with a Texas study by Jianling Li and Jack Rainwater – using land mapping tools they were able to demonstrate that:

areas dominated with single-family housing are not all associated with lower crime rates … Multifamily buildings are concentrated in the west and north of the city, but crime rates in those areas are relatively lower

the reason for these findings were

highest crime rates were those with the highest percentage of households in poverty and the highest percentage of population who did not have a high school diploma. The two neighborhoods also had the highest percentage of large-size households. In addition, male unemployment rates in the two neighborhoods were greater than 6.6% — topping the index in other beats. In comparison, the areas with lower poverty and unemployment rates, such as those areas in the north, generally have lower crime rates.

The recognition that crime isn’t based on housing density (but on demographic and socio-economic traits) is reinforced by research from Statistics Canada. Their findings indicate:

The population of high-crime neighborhoods has a larger proportion of single people, people living alone, young males aged 15 to 24, Aboriginals, people who moved in the year preceding the census and lone-parent families.

Interesting, Statistics Canada indicates that the statistics don’t indicate that these types of people are more prone to perform crime, but:

The analyses presented here do not establish causal links between these residents and the crime level in their neighbourhood. However, many studies have found links between these demographic characteristics and higher rates of victimization

This says that crime exists where people who tend to be more easily victimized reside. Significantly, they also indicate that levels of neighbourhood wealth are a primary indicators of crime:

A larger proportion of the population of high-crime neighbourhoods spend more than 30% of their income on shelter, and a smaller number of owners occupy their dwelling, regardless of whether these neighbourhoods are located near city centres or are on the periphery of the municipality

Finally, backing up the idea that crime isn’t related to density, the Metropolitan Policy Program at Brookings released a paper that indicates the gap between city (where I assume higher housing density) and suburban violent crime rates declined in nearly 2/3 of metro areas, and that city and suburban crime rates rose or fell together.

All this leads me to realize that it’s not the nature of condominium or high-density housing to promote or encourage crime. It’s the characteristics of the citizens – education, wealth, and ease of victimization – that births higher crime rates.

Indeed, if there was a single rule of thumb about condominiums and crime, the more expensive the housing in comparison to other homes in the municipality, the safer you will generally be. Single detached housing or condominium.

More Fallout to Toronto’s Falling Glass: $20 Million Lawsuit

In 2010 and 2011 two recently built condominium – the Murano Towers (731 units) and Festival Tower (378 units) literally rained down glass on the ground below. 13 panes of glass balcony railing released and fell.

Since then the glass from all those balcony units (somewhere short of 1000 units) has been removed and the owners forbidden from utilizing the space.

Yesterday the owners launched a $20 million dollar class action lawsuit. That’s about $18,000 per unit – to cover loss of use and to have the issue fixed in a timely manner.

Developer Accepts Full and Utter Responsibility for Catastrophic Failure

I have written many times that the final and full responsibility for critical failures of a condominium are the sole responsibility of the developer. End of story.

So I found it surprizing refreshing that Kevyn Frederick, developer for the failed Leduc, Alberta, condominium development Bellavera Green, has stated:

As CEO of Bellavera Green, I take full and utter responsibility. I felt that to speak to anything involving anybody else’s responsibility would be to minimize the impact that I’ve caused upon the people of Bellavera Green. So I had no other choice but to do the right thing and speak to only my failures.

The failure of the Bellavera Green has most likely forced significant and likely in some cases complete, fiscal ruin for the 150 people forced out of the development. That doesn’t include unpaid bills to subcontractors and other stakeholders.

People are still going to be madly angry at Mr. Frederick – and rightfully so. There is significant pain and hardship now, and lasting well into the future, from such an absolute failure of the development.

But there is an upside.

A developer that takes no responsibility acts as a roadblock to an investigation. We’ve seen bad developers destroy documents, launch counter suits, attack people’s reputations and lives, in all – do everything in their power to cloud the issue and slow down an investigative review. All at the cost of hurting even more innocent people.

Having accepted responsibility (which I am still stunned, and think is an amazing step forward), it may open up Mr. Frederick to cooperate with an investigation.

Specifically, with the developer on side, an investigation can get a direct understanding on how the “development dream” changed into a “development disaster.” A personal reconstruction makes it significantly easier for an investigation to isolate key failures or holes in current legislation and best practices that could be rectified.

With Mr. Frederick, given his willingness (the acceptance of guilt is a positive sign), we may have a very unique opportunity to improve the process of condominium development and protect future buyers a little better.

For I’m sure – and as he has indicated under questioning – he and his company are broke. So if there is no fiscal compensation, some time and assistance would be a start. Call it a form of truth and reconciliation.

HOA vs. Kangaroo – HOA Avoids Bad Press and Possible Suit

The Estates of Legends Ranch, Texas, HOA has jumped back from their decision to oust a kangaroo from the association. The six month old kangaroo named Mike resides with Jeni and Nick Dreis, and their daughter Kayla.

When the HOA found out the kangaroo resided with the family, they issued a demand letter for the animal’s removal. Kangaroos, it seems, are not deemed household animals. As such, they’re not allowed in the HOA.

The HOA relented though, and has allowed the animal to exist at the Dreis residence till the Texas Downs, a special needs education and enrichment facility utilizing a wildlife park and organic farm, is completed (estimated mid 2012).

Honestly, the HOA didn’t have much of a choice. The Texas Downs is founded by the Dreis, and Kayla has Down syndrome. The kangaroo is expected to be transferred to the wildlife park when it becomes habitable for the creature, and in the meantime acts as a companion pet for Kayla.

A simple search on “HOA Kangaroo Dreis” will return 149,000 results – and you can read the massive amount of attention this issue has received. The utter cuteness overload of Kayla and the kangaroo would have been a public relations nightmare if the HOA insisted on enforcing the bylaws (stating the kangaroo isn’t a household pet). The Dreis could have also filed a civil rights suit, as the kangaroo may fit under the Americans with Disabilities Act – which defines a service animal as (and the underline is theirs):

The ADA defines a service animal as any guide dog, signal dog, or other animal individually trained to provide assistance to an individual with a disability. If they meet this definition, animals are considered service animals under the ADA regardless of whether they have been licensed or certified by a state or local government.

I’m personally ecstatic that the HOA has relented on its booting of the kangaroo, and has accepted its bouncy lifestyle until it transfers to the wildlife park. Beyond the public relations issue, it’s OK (really, more than OK) for HOAs to realize that the concept of community is important in an association. That home is more than a house people huddle in, away from their neighbours. It’s a place to form relationships, friendships, and show some decent basic humanity to your fellow neighbours.

The Estates of Legends Ranch has put a great foot forward with their support of the kangaroo. They are to be commended.

Catastrophic Condo Failure Is Not Caveat Emptor – Buyer Beware

The Bellavera Green Condo, Leduc Alberta, has suffered a massive, catastrophic, failure requiring all 150 of the residents (85 units) to vacate the premises. The reasons: code-failing fire alarm system, missing or damaged firewalls, condemned exterior staircase, non-sustained heat and electric, a second phase abandoned – unsafe and unsecured, and inability for emergency vehicles to access the building.

It is unclear who has title to the units (it’s not clear if the developer handed over title to occupied units), who to go after for costs, and the developer – Kevyn Frederick – has conveniently disappeared. As with catastrophic failures of this type, residents who have mortgages will remain responsible for their payments even if they can never return to their units, or have other costs until such time they could reside again at the Bellavera Green.

In all, 150 people (and those that rely upon them) have suffered grievous fiscal harm due to the mismanagement and greed of yet another developer. And I lay the blame clearly and solely at the foot of the developer and none others. Developers have full and final control over the building and plans. It is their choice to follow legislation, or to cut corners and ignore building codes. The rest of the infrastructure – including building inspectors – is just there to try to catch errors. But these errors are not there because they haven’t been caught; they are there at the failure of the developer. Trying to pass responsibility off on inspectors is a lot like saying “you didn’t catch me, so I’m innocent.”

That’s why fools who imply that the Bellavera Green owners who put down money and purchased mortgages have a responsibility to the failure of the condominium because of “Caveat Emptor” – or “if you were stupid enough to buy into this building then too bad for you” are pathetic and dim-witted.

The whole issue of Caveat Emptor, for a situation like this, was thrown out with Supreme Court of Canada judgement of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co [1995] 1 S.V.R. 85, January 26 1995 (further discussion here):

First, it is reasonably foreseeable to contractors that, if they design or construct a building negligently and if that building contains latent defects as a result of that negligence, [purchasers] of the building may suffer personal injury or damage to other property when those defects manifest themselves.

In this case, the act of negligence: that it fails to meet code, and there is a real and true concern over devastating fire; so that personal injury or damage: the effects of such fire, that –

The reasonable likelihood that a defect in a building will cause injury to its inhabitants is also sufficient to ground a contractor’s duty in tort to subsequent purchasers of the building for the cost of repairing the defect if that defect is discovered prior to any injury and if it poses a real and substantial danger to the inhabitants of the building.

And the ruling seems to support my thought that the sole responsibility for catastrophic failures like this lay solely in the hands of the developer:

Apart from the logical force of holding contractors liable for the cost of repair of dangerous defects, a strong underlying policy justification also exists for imposing liability in these cases.  Maintaining a bar against recoverability for the cost of repair of dangerous defects provides no incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient behaviour.  Allowing recovery against contractors in tort for the cost of repair of dangerous defects thus serves an important preventative function by encouraging socially responsible behaviour.

In the end, the owners are in for a long term amount of lost monies and (more importantly) time that will be required in moving forward with their lives. It’s a sad thing, and the province needs to put better protection in place to help stave off this type of abuse by developers in the future.