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Stephen Marcus: The question.
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Stephen Marcus: If we don’t get to the questions which is very possible.
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Stephen Marcus: we answer every single question, and post webinar. So Monday or Tuesday everybody will get the Powerpoint the presentation, and answers to all the Q. And a questions.
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Stephen Marcus: even if they don’t get answered while they’re listening.
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Stephen Marcus: Jake.
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Jake Marcus: Thanks, Stephen, where we’re we’re live, live from?
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Jake Marcus: actually, we’re in Braintree. I’m in Braintree where Oris and Dan, where are you guys.
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Orest Tomaselli: I’m in. I’m in New York. I’m in Long Island, New York, and.
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Jake: I’m in Red Bank, New Jersey.
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Jake Marcus: Excellent! And, Steven, where are you?
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Stephen Marcus: I I happen to be in Fiji right now.
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Jake Marcus: And the book.
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Stephen Marcus: That the 4 h work week. So I’m trying to see if it works.
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Jake Marcus: Nice. Looks pretty out there, but anyways enough enough yapping about where we are. Let’s get to. We have a very jam packed program. Important program. We thank you all for joining. Today.
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Jake Marcus: We will be discussing some very important topics, very relevant and really just something that is at the forefront of everything we’re doing in the Condominium world. Currently.
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Jake Marcus: and just to give you intros. This is episode, 19 of the Marcus Hour, and we do think this is one of the most important ones. We’ve done very
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Jake Marcus: topical, very timely, something that if you have not, if you’ve been in the condo world, and you have not seen this. You’ve probably been living under a rock, but we want to. We really want to shed light on a lot that’s been happening.
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Jake Marcus: and just for some intros. My name is Jake Marcus. I am a attorney with the the law firm, Alcock and Marcus, which is a full service law, firm, full service, Condo law firm, I should say Condo and Hoa, specializing and licensed in the areas of Florida, Massachusetts, New Hampshire, Rhode Island, and Maine.
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Jake Marcus: my colleague, Steven Marcus. He’s the other member of the
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Jake Marcus: Marcus hour, which we’ve been doing for about a year and a half now.
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Jake Marcus: and we appreciate you being here, Steven. Anything you’d like to add before we get started.
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Stephen Marcus: Go Yankees.
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Jake Marcus: Oh, come on, get out anyways, right now, if that’s gonna keep up, because yeah.
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Stephen Marcus: So at the garden for the 18, th
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Stephen Marcus: being there, raising my understanding, I wasn’t there, but Jake was, and a few other condominium folks.
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Stephen Marcus: and in the middle of everything the chance, and are not always polite. Boston fans at Td. Garden was Yankees suck.
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Jake Marcus: The basketball Celtics game like, that’s all we got. So.
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Stephen Marcus: And and we have the jets and patriots Sunday, which should be a thriller. Yes.
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Jake Marcus: That could get ugly.
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Orest Tomaselli: Okay.
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Jake Marcus: Anyways, the the reason he brings that up is because we have, I think, 2 Yankees fans. I’m guessing. I know at least.
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Orest Tomaselli: I grew up in queens.
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Jake Marcus: OS.
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Orest Tomaselli: Met Fan, if you don’t grow up in queens, so I’m a met in a jet fan, which means that you know my life is horrible at this time of year. Every year.
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Jake Marcus: Yeah, that’s that’s been a tough tough go. I mean, I thought it was the Mets year this year, but they couldn’t quite get it all together.
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Orest Tomaselli: Yeah.
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Stephen Marcus: And and on the jets one of my huge jets fans. I’m going to the game with him on on Sunday, after taking to him and his family to like 20 years of games.
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Stephen Marcus: The the jets were down like 41 to 0 or something crazy, and he looked at me, and he said, I understand why? Yeah, you invite me to me and my family to these games. Why is that? He said. You do that to humiliate me?
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Orest Tomaselli: Damn!
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Stephen Marcus: He, he said. We’ve had 55 years of misery, and I had to think, I think, of Joe Namath as current events
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Stephen Marcus: everybody else on this call, including the panelists other than me. Think that’s ancient history. But Joe Namath was was the last great great success. So we’ll see how the how the game goes. Yeah. But anyway, I did. Don’t get me talking that this is for our sports show that.
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Jake Marcus: So so yeah, it won’t be. Maybe even, it’s more important than than sports. What we’ll be discussing today. And I’d like to introduce our special guests, Oris Tomaselli, and Dan Cerullo. Thank you both for joining and anything you’d like to add before we get started. Besides.
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Jake Marcus: obviously, your sports fandom.
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Orest Tomaselli: Yeah, no, just you know I I am thrilled to be here. I I have to tell you Steven and I know each other for many, many years, a couple of decades, I think. And I’ve just really enjoyed having, you know, a a sounding board over the years
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Orest Tomaselli: someone in the industry who, you know, knows a lot about condominium compliance and requirements. And it’s very nice to be able to be on this, you know presentation today, Dan, I you know, I just to I’m also thrilled that Dan’s here today because Dan is kind of our insurance expert at condo Tech, our total compliance expert as well. So thank you guys for having us
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Orest Tomaselli: excellent.
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Jake Marcus: No, we appreciate, we appreciate having you. And yeah, we will be discussing just to kind of get right into the topic. Condo lending. That’s that’s the big thing we’ll be discussing today. Lender guidelines, changes that we’ve seen. And to give you just a backdrop.
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Jake Marcus: And again, yeah, we’ll get into structural integrity requirements. We’ll get into reserve studies. We’ll get into the insurance part of it which Dan will be able to discuss deductibles to that end. Litigation and engineering studies everything that that you want to know feel free to ask any questions during this discussion. If we don’t, this is obviously going to be a jam packed session.
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Jake Marcus: If we don’t get to it during today’s session, we will respond. Within the week within next week I should say
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Stephen Marcus: In. In addition, everybody who registered will get a Powerpoint a copy of the Powerpoint, a copy of the video link to the video and answers to every question asked whether we get to them today or not.
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Jake Marcus: Great. And just to give you a backdrop of this whole. Why, this has been so important. There’s 1 specific time frame in particular, one particular event that really flipped condo lending and the condo world on its head. And this was in June of 2021, the Champlain Towers collapse in a neighborhood in Surfside, Florida
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Jake Marcus: resulted in the death of 98 people.
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Jake Marcus: the building essentially pancaked overnight. It all happened in a very short time. Frame and a lot of litigation transpired. A lot of lending changes occurred in the years and months that followed.
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Jake Marcus: and we are here today because we never want to see anything like that happen again. None of us in the world want to see anything like that happen again, and lenders, I think, got a little nervous after that occurred, obviously.
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Jake Marcus: and that has led to where we are today discussing this important topic, and why we are so honored to have these special guests that can really discuss what they’ve been doing. So before we get kind of into the details of this webinar. Do you want to Orist or Dan? Do you want to kind of discuss a little bit about what condo tech
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Jake Marcus: does, and and and or strategic inspections as well.
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Orest Tomaselli: Sure. Sure. So,
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Orest Tomaselli: yeah. So I am. The president of Project Review at Condo Tech. Condo Tech is an organization that handles condominium project review for lenders primarily over the last decade or so. But and within the scope of that, you know, our services are providing documents directly to lenders. When a loan is originated, and reviewing Condominium
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Orest Tomaselli: documents for compliance with Bennie, Mae, Freddie Mac, and Portfolio lending guidelines for lenders where we warrant those sites that we review for compliance, so ensuring essentially that lenders can have a green light. When a loan is originated in a specific Condominium project or cooperative project. We also do an enormous amount of direct to association.
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Orest Tomaselli: and Developer compliance work where you know, if an association is concerned, Condo or Co-OP Association is concerned about lending compliance, or has had issues with lending compliance, or has been designated as ineligible by the agencies for lending we work with those organizations in order to provide them with a diagnostic report. which we call the lending Compliance Report.
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Orest Tomaselli: That’s been incredibly successful of late for us, and incredibly helpful to associations, to manage property managers, and to board members, to figure out what’s wrong with their property, if anything. Why, there’s an issue of lending in that property
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Orest Tomaselli: and how to fix the issue? And in some instances, and now especially, how to contact the agencies, to essentially remove the designation if, in fact, that property is compliant at that point in time, if the Association has fixed the repair or done the work. So
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Orest Tomaselli: we handle a lot of direct to association discussions. We discuss and consult with board members and property managers. Now on a daily basis, on hundreds of condominium developments across the United States. So within condo tech, you know, Dan is essentially our compliance officer and and Dan reviews.
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Orest Tomaselli: You know, the the really nitty, gritty issues that surround condominium and cooperative lending compliance. Especially, you know, insurance issues, critical repairs, deferred maintenance.
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Orest Tomaselli: And is truly an expert in the industry and is called upon by, you know, lots of folks, agencies, and lenders across the country and attorneys to give his opinion on whether or not a building is compliant or not, or a property is compliant.
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Orest Tomaselli: I am a little bit of a unicorn in the industry, and so far as that I, also am the owner of strategic inspections, which is a national engineering company which provides engineer, professional engineer inspected reserve studies to condominium cooperative developments. Nationally what we’ve worked at, you know, really diligently over the last 18 years or so
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Orest Tomaselli: is developing a reserve study report for an association at strategic inspections that not only provides, you know, the facade and structural and mechanical evaluation, and of course, the financial evaluation of a condo or co-OP property, but also provides a, you know, snapshot into whether or not that building is compliant from that perspective.
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Orest Tomaselli: And we call that you know, aspect of our reserve city a lender property analysis. That’s included in every single report. So what I’ve tried to do is encompass all of the lending compliance needs in that reserve study report so that lenders and agencies can make good decisions about lending in condo and co-OP properties.
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Stephen Marcus: Thank you, Horace, Jake, can we advance the slides and hand it over to Boris for the 1st part of the presentation.
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Jake Marcus: Yeah, let’s let’s get to it. So yeah, we’ll be talking about well, we kind of already discussed this condo lending eligibility, unlocking condo lending
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Jake Marcus: and we’ll get to a lot today. So reserve studies, structural integrity insurance everything in between. So
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Jake Marcus: there’s a list
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Jake Marcus: he kind of just explained a lot about what he does. So if you want to read, we’ll be providing this Powerpoint. Dan.
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Jake Marcus: there’s his headshot
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Jake Marcus: we’ll get to him as well. Anything else you want to, add, Dan.
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Stephen Marcus: My. My only final comment before handing it over to Oris is, Orist does
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Stephen Marcus: lots of these. I’ve been listening to many, many of his webinars for lenders and associations and all, and to me he’s the Taylor Swift of Condominium, lending.
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Orest Tomaselli: Love that line, love that line.
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Stephen Marcus: With that. Can we hand it over to Travis and Taylor.
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Orest Tomaselli: Me too.
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Jake Marcus: Can we charge? Can we charge like $2,000 a ticket
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Jake Marcus: to for people to attend oris? Swift’s shows.
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Orest Tomaselli: My wife would be thrilled at that if that actually could happen.
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Jake Marcus: I was trying. I was looking at tickets in Miami, and they were like 2,000. But then, like 500 in stubhub fees, so.
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Orest Tomaselli: Yeah.
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Stephen Marcus: Alright. Let’s let’s advance the slides and let’s get going.
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Jake Marcus: Yeah, let’s talk about Taylor Swift. No, I’m just kidding
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Jake Marcus: dan anything you wanna add before I I know we kind of just glossed over your your
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Jake: No I think I’m good. I you know I’ve been doing this for 15 years, and I’ve got a lot of experiences or said so. I’m very happy to be here and and provide whatever guidance I can.
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Jake Marcus: Alright excellent! Let’s get to it. Thank you, guys.
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Orest Tomaselli: You got it all right. So what we’re gonna talk about today and part of what we’re going to talk about today, and this webinar could go for 14 h, not an hour, but just because of the topics that you know surround this. But condo and co-OP reserves. I think a lot of associations, and even a lot of originators in the mortgage industry. Don’t really, you know, have a full understanding of what reserves are and what they’re supposed to be used for.
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Orest Tomaselli: and what they have now become, you know, very important. They’ve become a very important part of condominium lending compliance. Now, reserve studies used to be done in order for an association to have an idea of what adequate reserves are, and I’ll get into that in a minute. But you know how much an association has sitting in a bank account.
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Orest Tomaselli: For future capital repair and maintenance projects is incredibly important, and again, an indicator of health in the community
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Orest Tomaselli: from a lending guideline perspective. Reserves should be collected every single year in an operating budget. There is a 10% line item requirement by agencies and lenders, which means that 10% of the Association’s operating budget should be set aside
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Orest Tomaselli: for reserves and collected in a segregated account and utilized specifically for the repair and maintenance of common area components.
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Orest Tomaselli: But you know what’s happened over the years is that 10% line item requirement guideline
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Orest Tomaselli: you know, went into place. I want to say.
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Orest Tomaselli: you know, 12 or 13 years ago, and associations have been coming along and putting that line item in and collecting that money. But what we’ve seen in the industry is a lot of those reserves are spent every single year. And that is
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Orest Tomaselli: technically fine.
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Orest Tomaselli: From a lending compliance, perspective, or, I should say, used to be technically fine. But when you look at an association as a whole, as a condominium building. What lenders are looking for is, they want to make sure that you’ve established additional capital sitting in a reserve account to be utilized for those repairs and maintenance, not just collecting it and spending it every single year. So
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Orest Tomaselli: associations, condo associations, and cooperative associations that have large reserve accounts are looked at in a much more favorable way than associations that are collecting and spending that money every single year. So that’s just a a snapshot of what reserve reserves are for condominium cooperative development. So Jake, would you mind, you know, advancing this slide.
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Orest Tomaselli: so
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Orest Tomaselli: reserves have to be dedicated for a common area, component
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Orest Tomaselli: maintenance, repair and replacement.
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Orest Tomaselli: So
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Orest Tomaselli: you know, not only are those, as I said, accumulated reserves, important.
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Orest Tomaselli: when you look at buildings that have a substantial reserve account. The 1st thing that comes to mind is that you know that association is really concerned about their financial future. And that’s what that reserve, you know.
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Orest Tomaselli: Account portrays to the lenders and insurers out there in the industry, because it’s not just lenders that are looking at your reserve account these days. It’s also lots of insurance carriers who are, you know, utilizing, you know, reserves and building condition as a marker for what your insurance costs are going to be
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Orest Tomaselli: as I said earlier, you know, if they’re really supposed to be dedicated for. You know, the the repair and maintenance of common area components in the building. We have seen instances where
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Orest Tomaselli: you know associations were, you know, spending, you know, their reserve money on operating cost of the building like salaries for employees and and and stuff like that. And it’s just not supposed to be what a reserve account is for. So it’s a financially pragmatic, you know, way of ensuring that you’re avoiding special assessments. And that’s when it comes down to it.
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Orest Tomaselli: If you look at 2 condominium properties sitting side by side, a property that operates via special assessments, which means that when something goes wrong every single unit owner has to divvy up whatever the cost of that repair or maintenance item, is
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Orest Tomaselli: as opposed to communities that have got capital sitting in an account because they know that something is coming up, or they know some repair is coming up. The building that has had those reserves sitting in their account is the building that you really want to lend in as a lender right? And the goal again, when you look at reserves, reserve studies, and what agencies and lenders are really looking at and trying to ensure is that
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Orest Tomaselli: the financial future of the residential homeowners? Isn’t put in jeopardy by, you know, creating a special assessment. So what they do is they really limit special assessments or the the presence of reserves limits special assessments in a property? You can’t always limit it. There are instances where you know, as we’ve seen now in Florida, with hurricanes and
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Orest Tomaselli: fires in California, where there are things that happen to these condominium cooperative communities that you can’t foresee, and you have to have a special assessment in order to fix some of the components that may be damaged in those instances that maybe aren’t covered under the insurance policy.
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Orest Tomaselli: But what we’d like to see in the industry is for that to be few and far between, for lots of reasons. But I think most importantly. So that condominium associations really think about their financial future pragmatically.
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Orest Tomaselli: So if you don’t mind, advance next slide, Jake, thank you.
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Orest Tomaselli: So here’s the big, you know. Topic
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Orest Tomaselli: right? That comes up, especially as a result, as Jake said, earlier outlined earlier. Of the, you know, tragic collapse of the Champlain Towers Condominium. In Florida there has been an incredible focus
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Orest Tomaselli: on deferred maintenance and critical repairs. The focus has not only been by lenders, but also by state and local legislators who are looking to protect homeowners from, you know, a possible future collapse right? They’re looking at every building, and
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Orest Tomaselli: you know, we get some push back here when we’re looking at projects at Condo Tech, where you know, when we make that statement.
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Orest Tomaselli: You know, associations are like, you know, this is a 2 unit, you know, a 2 story property or a 3 story property. We don’t have that kind of risk which is totally understood. But if you look at the kind of thought process behind guidelines that surround deferred maintenance and critical repairs, the thought process is.
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Orest Tomaselli: associations really should not be letting components go without inspection. They shouldn’t let structural components of the property go without, let’s say, a 3 year inspection cycle.
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Orest Tomaselli: They want to make sure, from a lending perspective that any sort of future risk in lending in the property is mitigated by associations making sure that they’re doing the maintenance work and to the components in the building, whether they be mechanical components, whether it’s an Hvac unit.
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Orest Tomaselli: or structural components like the facade of you know, the the you know, parts of the facade of a building, in some instances, or any of the underpinnings of a building or several buildings that we’ve seen that comprise condominium and cooperative projects across the country.
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Orest Tomaselli: So the the key here and what’s happening is that. And and
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Orest Tomaselli: I should say that it’s it’s difficult to almost explain in many instances, because deferred maintenance could mean a lot of different things. And it’s very hard to determine what deferred maintenance is, unless you have some sort of inspection on a property. You know, by a professional engineer. Right? You know what is
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Orest Tomaselli: what is. You know what is considered deferred. Maintenance, or what is a critical repair that’s, you know, necessary to be performed.
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Orest Tomaselli: And the answer is, the agencies have a very clear outline
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Orest Tomaselli: of what they want to see and what lenders want to see as well, which is, they want to make sure that the health and safety of the unit owners isn’t compromised by a repair that’s being or that isn’t performed on a specific component in the property. So we’ve seen instances. And Dan could tell you a thousand stories where there’s been a retaining wall outside of a property, and it’s crumbling
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Orest Tomaselli: and we’ve got commentary, like, you know, from associations that can’t get mortgage financing. Well, nobody walks on that side of the property, anyway, you know it’s it’s on the other side of the building, or it’s on the other side of you know the garage, or whatever it is, but the reality is is that you know, a crumbling, retaining wall is absolutely a health and safety issue, and that it has to be fixed before residential lending is going to be available in
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Orest Tomaselli: a condo or co-OP property.
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Orest Tomaselli: when you’re you know. So my main points here, I think, that are important to understand is that
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Orest Tomaselli: when you’re looking at reviewing a Condominium Association and for the Board members that are on this call today. And property managers that are on this call today. What you really want to do is look into whether or not the components, whether they’re mechanical or structural, have been inspected by a professional. And if you’ve been doing the appropriate maintenance work to those components
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Orest Tomaselli: to, you know, you know, to to ensure that you’re not gonna have something that breaks. Tomorrow I’ll I’ll and on this point I’m gonna leave you with an interesting story as well. We had an association that was in Wisconsin that had a a broken Hvac system.
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Orest Tomaselli: and that was a property that you know was rejected for lending agencies didn’t want to lend it, because it was an Hvac system, and you know the comment, you know, by the Association and by the Board members, was we? We hardly turn that thing on. We’re in Wisconsin, you know. This is not a state where you know it gets to 100 degrees in most instances. Which we understood completely. But
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Orest Tomaselli: unfortunately, you know, those components comprise.
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Orest Tomaselli: you know the property, and they have impact on the future cost by the residential unit owners. So large mechanical components. Have to be maintained even if you do have a property Hvac unit and a property that’s hardly ever turned on. Those are components that have to be looked at and have to be maintained regularly.
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Orest Tomaselli: If you wouldn’t mind Jake. Next slide, please. Oh, we have a a little poll that came up as well. What state do you predominantly work in.
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Jake Marcus: So so yeah, or you were mentioning other States. So I decided, we’ll we’ll get a a poll going for a couple of things I’ll next one I’ll do is what what? What your what industry profession you’re in, or what what your whether you’re a lender or servicer
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Orest Tomaselli: Excellent.
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Stephen Marcus: So, Jake, on the 1st one. For some reason I can’t
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Stephen Marcus: click the state.
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Orest Tomaselli: I think, because you’re a host. Host and panelists can’t vote. It’s.
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Jake Marcus: Yeah, yeah, it’s illegal.
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Stephen Marcus: That’s unreasonable.
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Jake Marcus: Rigged, voting.
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Stephen Marcus: Alright!
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Jake Marcus: Thank you all for participating. Go on.
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Orest Tomaselli: You got it? So you know, one of the topics today, of course, is now reserve studies. Right and reserve studies have become incredibly popular in the industry, you know. And and I want to go through this with, you know, and as I like to say, I you know I don’t want to feather my own nest right? But I will tell you that you know at strategic inspections my reserve study firm. We do these reserve studies across the United States, and we work very closely with.
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Orest Tomaselli: you know, the industry organizations like Cai, that have tons of engineers and reserve specialists, and that provide these reserve study reports across the country. So what I’m going to tell you about reserve studies today is not just my opinion on them, although it’s pretty valid, but
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Orest Tomaselli: but also what the industry standard kind of has become for reserve studies. So what is a reserve study? And it’s important to understand what a reserve study is, because
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Orest Tomaselli: a they’re kind of a little different state by state.
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Orest Tomaselli: Who performs them? Who’s expected to perform them? Can vary dependent upon the State, like an example of that is that if you get a reserve study in the State of California
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Orest Tomaselli: they’re of a much more limited scope and reserve studies are essentially, you know, legislatively required. So there’s like a limited type of reserve study product that’s provided in most condominium properties in the State of California, whereas if you go into Florida, if you own a condo building and or or live in a condo building in Florida, right?
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Orest Tomaselli: You know. Not only are reserve studies kind of, you know, all inclusive, with very strict guidelines on what they’re supposed to be
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Orest Tomaselli: but they also have a structural component analysis within some reserve study reports, and also a secondary structural inspection is required that often goes along with the reserve study is often performed by the same reserve study, firm as long as they are professional engineers, and have the capacity and ability to do that.
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Orest Tomaselli: we do that across the country, not only in the structural and mechanical side, but also on the normal reserve study report. So a reserve study is essentially a long term capital planning report. Right.
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Orest Tomaselli: It determines what. And I hate to read these slides, but it’s the greatest description of it. It determines the appropriate capital necessary for common area, component repair and replacement. So that means that it’s not just, you know, the you know, facade of a building or the roof of a building or the mechanicals of a building that’s included in a reserve study report. But it’s also the hallways.
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Orest Tomaselli: Painting the hallways paint, you know, refinishing the floors, the carpeting that’s in a property. Any of the amenity spaces that are common area spaces that you may have in a condominium property which can include, you know the kids room, or can include the billiard room or the you know the the movie room, or whatever you may have. That may be in the clubhouse of a of a specific property or housed within. You know the structure, so
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Orest Tomaselli: it outlines not only a structural mechanic and mechanical evaluation and and long term planning tool for those components, but also provides a financial overview of the property. Right? What are the financials look like? How much money is currently in the reserve account.
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Orest Tomaselli: What are the future capital costs going to be in that property, to repair and or maintain the components in there? And what should the Association be? Setting aside every single year to go into their reserve account?
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Orest Tomaselli: often. Now reserve cities include a structural and mechanical inspection of the property at strategic inspections. We only do this through professional engineers. However, within the industry there are reserve study reports created
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Orest Tomaselli: by reserve specialists and often reserve specialists are not engineers. They have this designation provided them to them by some of the industry organizations out there, and I certainly don’t want to say that a reserve specialist report is not a good report, because in many instances we see good reports coming from reserve specialists. But when we’re reviewing a reserve study report a condo tech. You can’t put
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Orest Tomaselli: the same type of, you know, acceptance on a structural or mechanical component review for a from a report that’s performed by a reserve specialist as opposed to one that’s performed by a professional engineer.
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Orest Tomaselli: The
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Orest Tomaselli: there is a detailed inventory in a reserve study report of every single common area component in the property.
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Orest Tomaselli: So it’s actually a very nice report to have for an association or a management company, because
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Orest Tomaselli: every single one of the components that’s listed, or that is included in the property, or that exists in the property, is included in the list of you know how old. Is that component? What that component is? It’s often identified by, you know. If you look at some of the fans that are in some of the buildings that you know resources are performed on. You know how many horsepower is in this fan. You know what the Btu
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Orest Tomaselli: user of this particular system?
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Orest Tomaselli: and it’s very nice to have when you’re doing repairs to components or planning future repairs or future upgrades to a building to have very detailed information about what’s in that building. So reserve study provides that detailed inventory of component. But it also provides what the current condition is, what the remaining useful life is of that component
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Orest Tomaselli: the replacement cost of that component and provides that typically based on on a 30 year horizon.
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Orest Tomaselli: meaning that the report goes out 30 years. And and within the scope of that you know, develops this financial analysis of what you know component costs are going to be, and how much money should be set aside for reserve every single year. The financial analysis that’s included in a reserve study report, again, is probably one of the most important pieces of this, because it outlines. You know what the current amassed capital reserve
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Orest Tomaselli: is, and what it should be. And you know, maybe it’s short. Maybe there’s not enough money in the account, and the association has to make up that money. Or maybe that association is overfunded. We have many condominium associations across the country that have a massed, you know, millions of dollars that are sitting in their reserve accounts
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Orest Tomaselli: that may not be used for a decade, and those again, if we go back to the other slides from before those are buildings that are incredibly healthy, and if I was a buyer wanting to buy in a condominium property I would buy in a property that had a healthy reserve account.
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Orest Tomaselli: I think, as I said also, several States have now required reserve study reports, and I think the count is about 13 states across the country now require reserve study reports. you know.
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Stephen Marcus: Do you know if Pennsylvania does somebody ask that question? If you know.
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Orest Tomaselli: I’ll take a look at the list. I have the list. I I don’t think they have yet, but I will. I’ll confirm that for sure.
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Stephen Marcus: And and if you have a list
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Stephen Marcus: we’ll add it to one of the materials we send. Monday or Tuesday.
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Orest Tomaselli: Yup, have it in.
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Stephen Marcus: Thank you.
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Orest Tomaselli: The again. Professional in this environment right now. And let me tie this into lending when lenders are looking at reserve study reports, and they’re asked for in almost every single instance, when any residential mortgage is applied for in a condominium property, they’re asked for regularly now. And when we do our
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Orest Tomaselli: we’ll, we’ll review.
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Jake Marcus: I was. I was just gonna chime in on that last topic really quick.
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Orest Tomaselli: Sure.
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Jake Marcus: Because it does look like us. Community Associations Institute, which Cai, which we highly recommend. All people involved with the condo industry, get involved with
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Jake Marcus: has a list of the States, and it does not look to include Pennsylvania. I can type out the States and include that in the chat.
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Orest Tomaselli: Thank you.
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Orest Tomaselli: Yeah, that’s where my list is from as well. I didn’t think there was most recently. By the way, the New Jersey. Is a state that legislatively now requires reserve studies on condominium properties, on most condominium properties. It depends what their structure is built from, and
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Orest Tomaselli: but that in most condominium properties have to have a reserve study report in the State of New Jersey by the end of 2026. By the end of this year every single condominium property in Florida must have a reserve study report, so
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Orest Tomaselli: which, by the way, are being made public as a result of the legislation which is really throwing the State into a panic mode. In some instances, because buyers, purchasers are going to now have access to the reserve study, report, and Structural integrity report that’s performed in the State of Florida
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Orest Tomaselli: And some buildings are not reserved for very well, and have
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Orest Tomaselli: massive costs coming in the future to repair their infrastructure. So, as I said earlier, I really like to review
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Orest Tomaselli: professional engineer inspected reserve studies. you know, Dan, would you agree with me on that? Right? That’s a that’s kind of like a common thing for us internally. If we see a condo tech when we see a reserve study, having a PE stamp on it or signing off on it. Knowing that PE was on site is kind of one of the most important things, and one of the things you look at right.
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Jake: Yeah, absolutely, especially if we’re going to rely on it for the critical repair deferred maintenance kind of review. Obviously, if if we’re just looking at it for the 10% line item, maybe reducing that the financial analysis is great and that doesn’t need to be done by a PE. But as soon as it’s going to be relied upon to clear concerns about roofs or retaining walls. Or what have you? You want to see that it was done by somebody who’s got an eye for that, and not just maybe a Cpa. Who’s guessing at the estimated remaining useful life.
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Orest Tomaselli: Right right? And then and and the other major point that comes up on a regular basis right now, and everybody asks is, how long is a reserve study? Good for? Well, that answer is kind of complicated. So as Per Fannie Mae and Freddie Mac, lending guidelines, reserve studies can only be reviewed if they’re less than 36 months old, 3 years old.
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Orest Tomaselli: So technically, they expire within 36 months and have to be updated in the past. We used to say that you could do a reserve study update without a site inspection, meaning that, you know. Let’s say, 3 years later, you could do a desktop review of a reserve study. That’s kind of going out the window now, because so much focus is on critical repairs and deferred maintenance
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Orest Tomaselli: that reserve studies are often required to be inspected by, you know. Let’s say, a professional engineer at the 36 month mark.
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Orest Tomaselli: because you want to be able to check off the box, that the property doesn’t have critical repairs or deferred maintenance. Now that 36 month, 3 year rule that doesn’t necessarily or hasn’t necessarily bled through on the State level, meaning that you know the law in New Jersey right now, as an example, says that the resource has to be updated every 5 years.
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Orest Tomaselli: Well, that’s all. Well and good. But the problem with that is, I can’t use it for a compliance review after 3. So yeah, you should have it performed every 3 years. Wouldn’t mind Jake. Next slide, please?
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Orest Tomaselli: we get this question a lot, and we think it’s really important to outline the following engineering reports are utilized in the lending compliance world regularly. Okay, it’s very helpful
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Orest Tomaselli: when either you know, a building has been deemed ineligible for lending as a result of some sort of structural issue.
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Orest Tomaselli: And it’s a targeted structural issue, meaning, it’s like, you know, not a building wide analysis of a property. But an engineering report often focuses on something very specific and issue. Specific engineering reports have been great. Because if let’s say, an association has run afoul of the lending guidelines is unavailable for lending.
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Orest Tomaselli: and you have to fix that issue. Often we ask that an engineering report is obtained on that specific issue just to clear that issue. And and you can’t get any better right? An engineer walks in, looks at the specific issue and gives you a report on it.
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Orest Tomaselli: The problem with engineering reports is is also that that specific? Oh, my God, how specific they are! Specificity! Oh, it’s been a morning
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Orest Tomaselli: because they’re so specific. They don’t often, you know.
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Orest Tomaselli: Take into account the other aspects of a property. So people ask us all the time. Can we utilize engineering report? Sure, absolutely. We’d love to see it
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Orest Tomaselli: when we’re reviewing a condominium property for compliance. But it doesn’t usually take into account the entire property, and that’s why reserve study reports are better reports to obtain on a specific property. We’re often asked also, if a property condition assessment, a Pca. Report which is a report that’s utilized in commercial, often
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Orest Tomaselli: most often commercial lending. If that can be utilized in lieu of a reserve study report, and the answer is absolutely, however, a Pca is
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Orest Tomaselli: a global report on the property, but it only has a 10 year horizon. Right? So when you’re looking at the difference between reserve study reports and Pcas, not only does it only have a 10 year horizon, it doesn’t have a financial analysis of the property.
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Orest Tomaselli: So you’re removing one of the pieces of review. That’s kind of necessary for condominium lending compliance. If you are obtaining a Pca as opposed to a reserve study report. But back to engineering reports it’s they’re incredibly helpful in providing specific, mechanical and structural guidance on a property
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Orest Tomaselli: it does not have a financial aspect to it. And oh, my goodness, there’s a typo! I thought I fixed that Dan, a financial analysis is not included in an engineering report.
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Orest Tomaselli: but it’s supposed to say is but we often see that these reports are utilized in concert with reserve study reports. So, Jake, who do mine next to
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Orest Tomaselli: next slide. So I I do want to make a couple of comments comments here before I hand it back over to Steven.
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Orest Tomaselli: you know, there is something that to be said for the lending compliance that’s now required for condominium properties for many associations.
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Orest Tomaselli: It’s very frustrating right. It’s incredibly frustrating to not have an available for lending designation, or to have an unavailable, unavailable for lending designation. If you do have an unavailable for lending designation on a property.
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Orest Tomaselli: What it means is that eventually, if you don’t fix it as a Condominium association, you’re likely going to have reduced values in that property right? If you can’t get mortgage financing on a unit. And people are, you know, supposed to come with all cash in order to buy a unit, or you have to go to a lender who’s going to charge you one and a half percent higher on an interest rate and require that you have a 30 or 40% down payment.
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Orest Tomaselli: And I’m not pulling those numbers out of the air like those we’re seeing 30% minimum down payments for non-warrantable projects in most instances with interest rates that are much higher. The values of those units are going to be substantially reduced. Eventually
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Orest Tomaselli: it should be said that
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Orest Tomaselli: at Condo Tech what I tried to do is try to provide a tool to
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Orest Tomaselli: property managers and board members that would allow them to figure out if they’re compliant or not, and and I will plug this. We charge $995 to do a complete legal financial or analysis of legal documents, a financial analysis of a property.
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Orest Tomaselli: a complete analysis of the property, with residential lending guidelines from Fannie and Freddie, Fannie Mae and Freddie Mac.
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Orest Tomaselli: It’s literally the best money we think you could spend in the industry, and I tried to keep it as a cost of less than a thousand dollars. So associations can do this without very much difficulty.
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Orest Tomaselli: To get a diagnostic, to understand what
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Orest Tomaselli: is wrong with the property, and how to fix it, and to make sure that residential lending is available.
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Orest Tomaselli: Yeah.
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Jake Marcus: It. Sorry to cut you off. It.
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Orest Tomaselli: No, no.
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Jake Marcus: In true, Taylor swift fashion we have an encore presentation because there’s actually 3 more slides for you.
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Orest Tomaselli: Oh, alright!
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Stephen Marcus: This one’s mine.
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Orest Tomaselli: It.
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Jake Marcus: Oh, never mind. Okay.
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Orest Tomaselli: Yeah, yeah, no. This is.
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Jake Marcus: The encore. The encore specialist is Steven, then.
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Orest Tomaselli: Right over Jake.
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Stephen Marcus: Jake. What do they call the the band that plays before the
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Stephen Marcus: before the the bet, like.
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Orest Tomaselli: The opening act, the Opening Act.
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Stephen Marcus: The opening. So the 3.
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Jake Marcus: Stooges.
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Stephen Marcus: Yeah, I’m just the stage band for Taylor, but and Oris, but they made me go last for good reason.
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Orest Tomaselli: Apparently I’m the opening act. Steven.
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Stephen Marcus: Okay, you ready? You ready for me, Jake, or.
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Orest Tomaselli: Yes.
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Jake Marcus: Yeah.
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Jake Marcus: Get ready for the. They’re gonna start throwing tomatoes at you as you enter the show, because they’re gonna Miss or us.
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Stephen Marcus: Okay, oris, did you have I cut you off? Did. But anything else that you want to say.
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Orest Tomaselli: My final point is that you know, it’s really important for everybody that’s on this call. I saw the list of attendees for associations and managers. You really need to understand that lending compliance is really important for condominium properties. And it’s really important to retain value and resources are incredibly important. What Stephen’s gonna go over about insurance policy requirements right now
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Orest Tomaselli: is even, you know, is equally, if not more, impactful for these associations. So thanks for having me happy to stay here and provide you with any additional commentary you need. But, Steven.
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Orest Tomaselli: how about.
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Stephen Marcus: No worries the
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Stephen Marcus: 2 things to to write down
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Stephen Marcus: the first, st and everything I say has was stolen from somebody. So the 1st is with pain
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Stephen Marcus: comes opportunity.
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Stephen Marcus: The second is
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Stephen Marcus: this,
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Stephen Marcus: hotline that we have
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Stephen Marcus: of
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Stephen Marcus: everybody on the call is too young to remember the Maytag repair man.
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Stephen Marcus: but I get very lonely because nobody ever calls me or ask me questions or does anything my boss shake is is tough on me, and doesn’t let me talk to the public. But my cell phone number. You could write this down and call me at any time
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Stephen Marcus: for free information, or to chat, or to talk about the paychecks. (781) 413-5226. One of the things that before I get into the insurance the deductibles is.
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Stephen Marcus: there’s a missing piece
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Stephen Marcus: that could really help
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Stephen Marcus: to put the puzzle together for addressing. How do we deal with what the reserve studies and condition studies show. And how do we get buildings to the shape that they should be in? To both enhance the value of the units, but also to make sure that there’s not ever, ever again another surfside.
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Stephen Marcus: and to make sure that associations don’t defer maintenance and the way and it worked well in the New England states
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Stephen Marcus: that we work on, though not as well in Florida, where Jake is also admitted, is there are
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Stephen Marcus: not enough lenders who are lending money to Condominium associations to address
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Stephen Marcus: these types of repairs. So let’s say, you get a conditioning study. There’s 20 million dollars of issues. There are banks in the area that will lend to the association with the collateral being a future assignment of condominium phase.
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Stephen Marcus: ops. At 30 years we have some banks at 25 and 30 years. We have some at 12, we have some at 15,
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Stephen Marcus: but if you can spread the pain over that number of years, and you can complete all the safety of condition work in one or 2 years. The loan is eligible to be to be bought by the agencies or the government sponsored agencies. So if you want to chat about how these association loans work.
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Stephen Marcus: and why we just about never see a default in my 42 years of doing the Condominium Law give me a call, but it might be an opportunity for some of the big banks.
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Stephen Marcus: some of the local banks, but nobody seems to understand the concept. So there’s only a handful of lenders who do them in this area, or, as on reserve studies and engineering studies. I’ve watched for 40 years associations, and maybe partly my fault as part of the problem, ignoring and deferring maintenance
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Stephen Marcus: and not wanting to do reserve studies, not wanting to do engineering studies if they do an engineering study, not wanting to do the work because the unit owners will
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Stephen Marcus: torture them at the pool or mailboxes. I mean, there are people board members who won’t go to the common amenities because they’re going to get attacked.
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Stephen Marcus: But
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Stephen Marcus: the this has to stop
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Stephen Marcus: association managers and attorneys
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Stephen Marcus: have to start.
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Stephen Marcus: not mandating, but strongly suggesting, perhaps, even with the penalty being
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Stephen Marcus: that you’ll terminate the contract if the Association doesn’t do it
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Stephen Marcus: of finding out
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Stephen Marcus: financially and physically, what are the needs of the Association? What has been deferred on maintenance? Perhaps looking into these association loans, but biting the bullet and doing them.
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Stephen Marcus: There’s nothing more important today than what Oris has said about reserve studies and engineering studies. But please
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Stephen Marcus: stop the thinking of deferring them and kicking the can.
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Stephen Marcus: It’s time to address them for the good of all.
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Stephen Marcus: Cai’s public policy or best practices on reserve studies is that they should be done with a PE professional engineer, at least doing a a portion of them.
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Stephen Marcus: So bear that that in mind, on insurance there is a crisis in the commercial insurance market. The commercial insurance market includes Condominium Association master policies.
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Stephen Marcus: Fortunately, there’s not that crisis, at least. Yet in the personal lines which includes the homeowner policies that unit owners get.
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Stephen Marcus: So going through the bullet points. Lenders require a hundred percent replacement cost insurance.
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Stephen Marcus: and I’ll get more into this. And and Dan can chime in as well.
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Stephen Marcus: Lenders require deductibles of no more than 5% of the stated limits of the master policy
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Stephen Marcus: that has been an issue. But there might be a solution. 100% replacement cost is not always available. There’s a lack of capacity at certain limits. For example, 100 million dollar
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Stephen Marcus: property out West and out West doesn’t mean Worcester or Springfield. It means truly out West Wyoming, Montana, California, where we do some consulting work. We have associations well heeled that they’ve amended their documents to say that they’re currently insured at 30 30% of replacement cost. Now that’s a disaster waiting to happen, except
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Stephen Marcus: they can’t get insurance for more than those limits, the very high end. And whether it’s 100 million or 200 million, they can’t get a insurer to cover it, and they can’t even layer the property insurance by getting several insurers to cover it.
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Stephen Marcus: These are scary being insured for 30% of value is frightening.
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Stephen Marcus: Property coverage is sometimes layered, as I said, to reach the 100% replacement cost
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Stephen Marcus: on the practice tab
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Stephen Marcus: so
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Stephen Marcus: the lenders will allow $50,000 per unit deductible as long as if you had 50,000 times the total number of units. It doesn’t go over 5% of the stated limits.
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Stephen Marcus: But
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Stephen Marcus: this, this is not required by the lenders.
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Stephen Marcus: but for lenders, for associations and for unit owners.
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Stephen Marcus: What that means is that if there’s a damage to the unit and it’s for $50,000, and it’s under the 5%.
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Stephen Marcus: And the association does what most associations are doing these days, allocating the deductible to the unit that sustains the damage.
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Stephen Marcus: If the unit owner does not have coverage, a
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Stephen Marcus: in the amount of at least $50,000 under the HO. 6 policy.
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Stephen Marcus: They have a real $50,000 of damages that that they’re totally responsible for
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Stephen Marcus: now the lenders
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Stephen Marcus: willing to get the loan because the government sponsored entities permit it. But
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Stephen Marcus: do an added value to your borrowers and associations, or to unit owners and tell them they have to have, or they not that they have to, but they really should have a $50,000 of coverage, a or more, even if it’s not required by the by, the lenders next slide, Jake
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Stephen Marcus: insurance and deductibles for condominiums continued, there’s a movement. We’re experimenting it a bit in Montana, but it’s being discussed elsewhere where associations are going to be a walls insurance.
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Stephen Marcus: and that was unheard of at 1 point from 1979 to not too long ago the government sponsored agencies wanted all in coverage, or at least single entity. Original specifications coverage.
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Stephen Marcus: They change that, and now permit farewells as long as the lender or servicer make sure that the unit owner has an ho 6 policy with enough coverage, a and loss, assessment, coverage, etc. to cover everything within the unit
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Stephen Marcus: if damaged by a casualty. And the way that we’ve worked with local council in various states, California, Montana, Atlanta, Kansas city is. It’s written that it can be bare walls.
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Stephen Marcus: But the hard market insurance market may change, so it also gives the ability to broaden the coverage, to go back to all in
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Stephen Marcus: I hate single entity, original specs insurance.
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Stephen Marcus: If documents were written 30 years ago.
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Stephen Marcus: and it says that we cover what was there 30 years ago? Who the hell knows what it was? Who the hell knows what upgrades were done? And is the insurer gonna pay builders grade? Are they gonna pay nothing? Because, they’re not including upgrades. I know.
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Stephen Marcus: not not. I don’t think like like normal people. So lucky you are. But these things keep me awake at night. more and more carriers
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Stephen Marcus: insuring old roofs or roofs, as you say in Colorado at actual cash value, not replacement cost lenders will not accept that. It has to be at replacement cost
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Stephen Marcus: an idea that I have, and I talked briefly to ors about it, and it’s not there yet.
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Stephen Marcus: I would think that if the carriers are all doing that.
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Stephen Marcus: that
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Stephen Marcus: the lenders and the government sponsored entities could consider well what if the unit owner has lost assessment coverage for underinsured components?
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Stephen Marcus: In this case the roofs, everything else is full. Replacement costs except the old roofs. Loss, assessment coverage is there to provide for
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Stephen Marcus: uncovered or underinsured, uninsured or underinsured components? The roofs in this case would be underinsured loss. Assessment may be the answer. Those discussions still have to progress to other levels, which means more than just Torres and I saying, Gee, that sounds interesting, and I’m not sure if he’s telling the truth or humoring me.
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Orest Tomaselli: Telling the truth. I really thought it was a great idea
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Stephen Marcus: As to the 5% deductible, more policies have a per unit deductible, for example, in the northeast because of ice damning frozen pipes, etc, a $50,000 per unit for water damage is not unusual.
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Stephen Marcus: The problem is, if you multiply the $50,000 times the number of units, it often will exceed 5% of the policy, and therefore the government sponsored entities will not buy the loans from the local lenders.
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Stephen Marcus: the. It’s possible that loss assessment, again.
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Stephen Marcus: might in the future cover this gap. But we still have to have further discussions on the unit owner policy kicking, kicking in to satisfy the lender.
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Stephen Marcus: but some master carriers, and it’s after the policy is issued, and sort of on demand of a lender who says we’re not lending because you’re over the 5%, at least in Massachusetts. We’ve had national carriers or international carriers who have said.
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Stephen Marcus: we will do a 1 line endorsement to your policy that basically says, notwithstanding that your deductible is $50,000 per unit.
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Stephen Marcus: we sort of in our own minds know that there’s no way in hell that 100 units are all going to get damaged to to the tune of $50,000. Maybe a whole stack of units will be so. We’ve had carriers who issue an endorsement to the master policy, saying that it’s 50,000 per unit.
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Stephen Marcus: but not to exceed. And then they give a number that is less than the 5%. So in no, no circumstance, if there’s an occurrence with the loss over
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Stephen Marcus: 5% will there be? That will all be be covered so hopefully that has worked as a workaround. But it’s a fairly new idea, but has been successful, at least in the northeast. The insurance market is in crisis.
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Stephen Marcus: Premiums are not. People are going into associations, having to go into surplus lines, which means not admitted paper, which can be a whole other discussion as to what that means. But basically, for a policy that’s not as good.
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Stephen Marcus: You might be paying 10 times more for the for the policy. the the issue.
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Stephen Marcus: is
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Stephen Marcus: severe in that in some cases, so there’ll be no coverage. You can’t find a carrier in other cases the worst one I can give is from Montana, and the association bought the insurance. The premiums went from $54,000 in 2020
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Stephen Marcus: in 2023. Their premiums are $673,000 for a policy that’s not as good.
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Stephen Marcus: It’s frightening out there. And they were concerned that they weren’t getting going to get a carrier at all, and probably had 19 rejections until somebody came in with a well, we can get you insurance. It’s only $673,000. I don’t want to be at the unit owners meeting where that’s announced because you get lynched. But the insurance market is what it is.
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Stephen Marcus: practice tab this is sort of like exercise fitness equipment that people buy for their homes Jake back to the side
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Jake Marcus: Okay.
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Stephen Marcus: To the side.
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Stephen Marcus: Yeah, keep on that. On practice that my mind wanders.
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Stephen Marcus: I’m on practice. Step. Nobody wants to do this.
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Stephen Marcus: No, go back!
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Stephen Marcus: Go back! Go! Stay there that don’t.
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Jake Marcus: All right. Hi!
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Stephen Marcus: Okay, I I know you’re my boss, but I can make you do time out.
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Stephen Marcus: Sorry I I if I don’t. If I don’t have this in front of me. I’m not sure what I’m supposed to say, and my mind wanders enough. So I was talking about fitness, equipment, and Jake was frantically looking. Well, where does it say fitness? Equipment on the slides? It doesn’t, but it’s the same with fitness, equipment, and insurance policies.
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Stephen Marcus: Nobody in the history of the world has read a insurance policy. Nobody reads their homeowners insurance policy. Nobody reads their automobile insurance policy. Almost nobody reads master policies. I actually find it fascinating reading. But the insurance expert in the country is a gentleman by the name of Bill Wilson, and
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Stephen Marcus: his code is Rtfp. Which means read the full policy, though many others have put in a different word different word for the F.
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Stephen Marcus: But if you don’t read the policy, you don’t know what’s covered, what’s excluded. Maybe there’s a limit on water, water, backup, etc. But you ask for if lenders ask for the policies.
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Stephen Marcus: Does anybody really read them. I don’t know. I if boards got policies, do they read them? It’s there. And even if they do, it’s tough.
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Stephen Marcus: tough reading. It’s estimated that 50% of condominium owners do not have their own. Ho! 6 policy. Every unit owner should have an ho 6 policy with adequate coverage, a to cover the allocation of the deductible to the unit owner and to cover, under insurance or no insurance in the common areas
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Stephen Marcus: on fidelity insurance. The lenders require that the total amounts in hand at any time. But if you have certain financial safeguards that maybe will be less, or, for example, Massachusetts requires 3 months of assessments, not reserves.
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Stephen Marcus: and that’s acceptable to the government sponsored entities. The problem is, in my opinion, is.
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Stephen Marcus: if an association has $120,000 budget, and they have $30,000 is 3 months. Getting $30,000 of insurance isn’t enough if they have a reserve fund of a million dollars, because, unfortunately.
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Stephen Marcus: $1.1,030,000 can be stolen as easily as 30,000, and every year there are several thefts reported in the country, and they’re not. If you have $30,000 of coverage, you’re not insured for 1 1 million. That’s not a lender requirement. That’s my pet peeve. I have plenty of them.
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Stephen Marcus: List of grievances for festivus designate name the manager as a designated agent. Otherwise the principles of the management companies are not covered because the managers policy covers their employees, not them. We learned that the hard way back in 1991 with a company that’s no longer in business. So
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Stephen Marcus: just the the helpful hint is, yeah. Look at what the look at what the lenders it’s my wife she wants me to get she wants me to bring home milk.
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Stephen Marcus: The
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Jake Marcus: You’re at home.
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Stephen Marcus: Yeah, excuse me.
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Jake Marcus: You were in Fiji. I thought you were in Fiji.
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Stephen Marcus: Yeah, I am they. They have milk in Fiji. The the.
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Jake Marcus: Warm by the time you get back.
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Stephen Marcus: Cool.
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Stephen Marcus: Maybe she’s with me. Make sure the policy covers volunteers. Treasurers can steal money, double checks on the funds. You absolutely do not want to go to a unit owners, meeting manager
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Stephen Marcus: or trust or board member and say, Well, gee, we have a little problem. We had a million dollars taken by the treasurer, who went off to Tahiti or Fiji, and it’s not covered by our insurance because we didn’t have enough. The unit, and I guarantee it are not going to be happy and are going to sue you. Next slide, please, Jake
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Stephen Marcus: Lender. Question is another means of obtaining information. Lenders and condominium. Managers and associations have to work together. And maybe today’s the start of that process of understanding that. And the lenders have to understand that while the associations
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Stephen Marcus: would know information such as delinquency turn when turnover control occurred, and some other questions, someone, the question is simply including form 1076 are simply not fair. So there’s some things where we have to tell the boards and managers don’t answer things such as giving opinions as to the conditions of the physical plant
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Stephen Marcus: and or legal opinions. So there’s a question on some that says, if the building burns not to the ground, can it be rebuilt in the same number of units of London should have their attorney evaluate zoning and see if that’s the case, because in some cases on the waterfront you can’t rebuild
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Stephen Marcus: to the same number of units. The lender is responsible for determining if the project complies with the guidelines so could bring out its own inspector
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Stephen Marcus: or obtain meeting minutes. You go through meeting minutes, and you’re going to see discussions about entering contracts with contractors and engineers and architects. That’s probably going to be a hint that there might be something there. Also obtain a copy of the Budget. If there’s a line item for debt service or for special assessments, though we don’t like using the word special assessments. We usually do
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Stephen Marcus: monthly installments of common area fees, additional monthly assessments. The the budget
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Stephen Marcus: might give you a hint that there’s a problem. Financial statements for the prior year and year to date might also give some indication as to whether there are any physical plant issues or not. We all have to do better, and we all we need more discussion with lenders and the condominium industry to get to a place where we can peacefully coexist, because we all want
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Stephen Marcus: buyers to be able to buy sellers to be able to sell, and lenders being able to lend it all, all makes the world go around next slide.
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Orest Tomaselli: Hey, Steven? Just an interesting point on that last comment you made, and and about lenders, you know.
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Stephen Marcus: I didn’t mean to say anything interesting.
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Orest Tomaselli: The you know. What I think a lot of associations need to be also aware of is that you know lenders have to. If the
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Orest Tomaselli: if, if the information isn’t completed on a condo questionnaire, if you choose not to answer the question, the way the agency lending guidelines are written, the lender must ascertain that information from whatever source they have. So that’s a, you know, public information to your point meeting minutes that all these things, you know, leave clues about property, condition, and these other things. One of the things that we’ve seen is that
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Orest Tomaselli: those reserve studies which part of what we talked about today have now been utilized to answer some of those questions on the questionnaire. In fact, we see associations writing attached reserve study. So there’s a lot of benefit to seeing an attached engineering report, or seeing an attached reserve study, or seeing any of of that type of reporting that you can get
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Orest Tomaselli: to mitigate the risk and reduce liabilities for associations. That’s.
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Stephen Marcus: And and don’t. I was a condominium manager back in?
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Stephen Marcus: Well, I was going to law school. So back in 1977, 1978 but it’s always been a thin margin business.
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Stephen Marcus: though there are now companies who have ancillary lines, building maintenance, brokerage service and the like construction supervisors, but lenders make money on these loans. The brokers make money on these loans.
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Stephen Marcus: please. Lenders and brokers don’t go crazy, and attorneys for buyers and sellers don’t go crazy that the association manager wants $400 or $300
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Stephen Marcus: to fill out these questionnaires, that they might have their attorney charge a fee to review their answers, and to provide through homewise or other sources. There might be a fee for the condium documents and the insurance policy, and the budgets.
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Stephen Marcus: the we’re all doing fine. Managers are starting to figure out the formula of
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Stephen Marcus: making this a good, solid business. Managers have to have to eat just like we do. I eat more than most, but I digress, as I always do portfolio warehousing loans. In some cases the project will not meet the guidelines, for example, and I know I’m 15 min over. But that’s good for me. Won’t meet the guidelines. And, for example, if there are critical repairs.
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Stephen Marcus: Lenders state that the work has to be complete again with paying comes opportunity lenders consider warehousing or portfolio. Putting these in your portfolio. If you have an association loan, and if you have contracts in place for the work, so let’s say it’s 20 million dollars worth of work, and if it’s going to be done over a period of 2 years.
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Stephen Marcus: Why not warehouse the loan? And then, after 2 years, either when the work is complete, and it’s now can be sold to the government. Sponsored entities either sell it or keep it. Same with commercial. If the commercial percentage is 50%, and the government sponsored entities think that’s too high that may not bother you as a lender as much as it bothers the Government sponsored entities.
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Stephen Marcus: So, considering holding loans in certain cases there may be a place and additional business for you, Jake. Next slide
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Stephen Marcus: and I’ll be. I’ll be done very quickly.
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Stephen Marcus: The final bonus practice steps has nothing to do with this seminar, but I keep saying, and hope people will do it. Boards and managers. Please have your associations get a retain somebody to do an insurance
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Stephen Marcus: replacement cost appraisal. The stated limits on the policy may not be the policy limits. I just saw one on the high rise, 12 stories stated limits with 36 million. They did an insurance appraisal, and the insurance replacement cost came back at 49 million. That’s a huge margin of error.
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Stephen Marcus: get a for ordinance, Alar, coverage, especially if you’re in Boston, Philadelphia. Older buildings and I,
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Stephen Marcus: Florida has 40, 50 year old town blues like 50 years old, getting a building code expert or an architect. To say, this is what it will cost to meet current code. There’s no coverage for in a fire, if you have to rebuild and put in automatic sprinklers that never existed. It wasn’t damaged in the fire. They didn’t exist.
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Stephen Marcus: But there’s ordinance or law coverage, and associations are typically woefully underinsured for that. Some carriers offer 300,000 automatic.
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Stephen Marcus: and that almost confuses it more because the associations don’t go beyond the 300,000. All unit owners have to have their own homeowners policy. We don’t want any unit owner being hit with a $50,000 allocation of the deductible, because not a whole lot of people in this world have $50,000 just lying around.
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Stephen Marcus: Finally, associations should use insurance agents with specific expertise, with Condominium insurance.
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Stephen Marcus: It costs the same
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Stephen Marcus: 10 to 15% commission
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Stephen Marcus: to get the best and brightest condominium insurance agent in the world
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Stephen Marcus: or using a board member’s crazy. Uncle Bob.
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Stephen Marcus: Please don’t use Crazy Uncle Bob. With that. I want to have Dan Chime in with all the things I missed.
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Stephen Marcus: I apologize for keeping you late.
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Jake: Yeah, thank you very much. You know, I don’t really think you missed anything, I think, though, it’s important to just remember, obviously, as has already been mentioned. Insurance is in an upheaval right now nationwide, but especially in certain areas and the ways in which insurers are working with properties to try and address rising premiums include excluding certain payrolls.
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Jake: increasing those deductibles, maybe putting roofs on actual cash value. And so I think it becomes very important
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Jake: for you as a board member or a property manager, to be aware of what Steven outlined for us, especially related to those issues, so that you can talk intelligently with your insurance agent. Obviously the better and more familiar your agent is
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Jake: with condominiums the better off you’re going to be. But with guideline changes happening at rapid paces and things. Not everyone can keep abreast. So
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Jake: if you can keep up on these things, know where you might be able to cut coverages to save money, but make sure that you’re not getting actual cash value settlement basis. Make sure that you keep those deductibles at 5% or for the per unit deductibles that you’re pushing your unit owners to get that ho! 6 loss assessment coverage
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Jake: and then on in terms of payrolls. Fannie. Mae is really great. If you go to their website for Condominium insurance, they’ll tell you exactly what payrolls are required and which ones aren’t.
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Jake: and for those required perils those are the ones you want to make sure that if they’re dropping that coverage or they’re increasing the deductibles, you find a way to either go out and get a supplemental policy, or maybe a deductible buy down policy as a separate layer on top, so that you can keep meeting your requirements for Fannie and Freddie to avoid. You know, the loss of financing for your unit
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Jake: owners, which, as we’ve discussed, can cause issues with property values. So I just think, I think, Steven, I think you did a great job, and I think it’s just important for the board members and property managers to remember they’ve got to stay on top of their own coverage to make sure that what gets written at renewal doesn’t cause lending issues down the road.
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Stephen Marcus: Thank you, Dan. It’s that’s great. It it’s
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Stephen Marcus: I realize that we’ve as Ora said, we’ve gone through something that could have taken 14 h or 3 days, and this is extremely complicated.
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Stephen Marcus: I gave you my cell number, Jacob, you can advance the slides to the
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Stephen Marcus: the email addresses for you can call
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Stephen Marcus: You can call me, you can email Orest
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Stephen Marcus: Jake or myself. I assume that Dan’s email is Dan at Condo.
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Orest Tomaselli: Here’s.
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Stephen Marcus: Have you?
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Jake: Am at contact, so feel free to reach out with any insurance questions.
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Stephen Marcus: Yeah, I mean, it’s I mean there. There’s a lot that we can do to just gently guide you, Jake, have you cut and pasted the Q&A so and chat so that we can
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Stephen Marcus: answer them. And when we send out the Powerpoint and the link to the video. And next week, with all the answers.
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Jake Marcus: Yes, sir.
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Stephen Marcus: And when I say all the answers, all the answers, as best as our brains can say that they’re the best answers.
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Stephen Marcus: I really thank Orest and Dan. I hope this was valuable. I hope you learned something. I hope you learned what you didn’t, what you did. You know what you didn’t know what? You don’t know. And Jake any wrap up.
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Jake Marcus: No, we appreciate everyone for spending time on this Friday morning this autumn Friday morning. And we appreciate it. This this is really an important topic. It’s I as a practicing attorney in Florida as well as Massachusetts. I see it a lot in Florida. I mean the the condo world
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Jake Marcus: is is. It’s an epicenter there in Florida, regardless. There’s just so many condos and hoas. What we’re seeing in Florida
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Jake Marcus: with the sheer number of. And obviously, that’s where the Surfside Tower collapse occurred. What we’re seeing with the sheer number of waterfront properties. What we’re seeing with the insurance crisis, as Dan mentioned, it can be more susceptible in certain areas than others. Florida is one of those areas that has been hit hard literally has had 2 hurricanes in the last month.
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Jake Marcus: and that does not help the insurance crisis. And there’s just so much going on so much to be aware of. As far as developments. My co-panelists have been excellent at providing some insight as to what
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Jake Marcus: boards can do, what managers can do. As to ensuring that you’re complying with the best practices. And just to be aware of of what’s coming next, as far as
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Jake Marcus: ensuring that your property is in good shape, related to insurance related to structural integrity. Engineering studies, reserves, deferred maintenance. The list goes on and on and on. But we are the Marcus hour. This was episode 19,
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Jake Marcus: really, special guest or Dan. We appreciate you. Our next our follow up encore will be Taylor Swift. I’m sure she’ll have a lower less packed stadium than us? Or is the true Taylor Swift of our community?
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Orest Tomaselli: Yeah.
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Stephen Marcus: And and if this becomes a series of the networks, pick it up the next one. Dean gets a major speaking role.
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Jake Marcus: Yeah, right.
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Jake: Yes, I’d like to be upgraded to from supporting.
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Jake Marcus: Thank you very much.
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Jake: I appreciate the opportunity to be here.
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Stephen Marcus: So so go Yankees for Kevin Davis in Los Angeles. Go dodgers go jets
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01:25:38.950 –> 01:26:05.160
Stephen Marcus: patriots! I don’t know what to say. Enjoy your weekend next week, Monday or Tuesday, you’ll get a copy of the Powerpoint, the video link and answers to every question, and I know that we didn’t get to a lot of them. So everybody who registered will get that. And I think our next Marcus hour is November first.st
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Jake Marcus: Yeah, we’re right back at it again.
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Stephen Marcus: Electronic electronic voting and electronic virtual meetings.
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Jake Marcus: So we’ll be getting to electronic voting and elections. Some updates there. Oh, Karen, sure, Varian said. Go dodgers from Kevin Davis insurance.
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Stephen Marcus: My favorite. Well, verily’s and
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Stephen Marcus: their top notch they do an incredible kdis insurance does an incredible d and O policy through travelers. Bond
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Stephen Marcus: Kevin is in Los Angeles. My guess is that Karen Kevin’s Davis’s son Eric, and verily’s do all the work, and Kevin just sits back as he should. But we really appreciate you all being here. And here’s our disclaimer which basically says that anything we
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Stephen Marcus: said today probably didn’t make any sense. You can’t rely on it. We don’t know what we’re talking about. This was not legal advice. It was not engineering advice, it was not lending advice, and you can’t use our materials unless you get our permission. But if you mention Oris’s name, he typically will get permission. Thank you all.
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Orest Tomaselli: Thanks. Everyone.
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Jake Marcus: Thanks everyone.
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Jake Marcus: Oh, and we’ll be discussing elect elections next week. We’re right back at it with Marcus Hour, which is timely. There’s an election coming up across this across the United States. So.
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Stephen Marcus: Okay.
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Jake Marcus: Topic. But thank you, everyone.
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Orest Tomaselli: Share, with.