 Okay. Well, hello everybody and welcome to another episode of Condo Insider. My name is Jane Sugimura, and I'm the president of the Hawaii Council of Association of Apartment Owners. And I have with me my good friend and fellow officer and director of the Hawaii Council, Raylene Tennell. Hi, Raylene. Hi, Jane. Nice to see you again. Yeah, nice to see you. I guess we're going to be talking about an issue that's kind of, it may be contentious, I guess, right? The issue of insurance and condominiums. And I guess the scary part of it is, and I've seen Su Savio in a whole lot of videos recently, which is not a good sign, you know, you know, when she shows up, because I mean, I mean, and, you know, she represents so many condos in the state of Hawaii. And when she tells you that, you know, there are some issues, I mean, you have to, you know, it has to give you some fault because she represents so many associations. Why don't you explain to our viewers what some of the issues are? So with, you know, and it's a global, it's affecting everybody globally. So it's not just Hawaii, not just California and Florida. It's affecting everybody globally. So there's been so many natural disasters, the hurricanes, the floods, the fires, all the fires have been happening across the country, the Lahaina fire that happened recently. And it's all the claims, you know, especially the water damage claims. For example, I know someone that moved into a house brand new, Ocean Point, been there for 18 years, never filed a claim, filed his first claim. So they paid it, insurance paid it, but they also told him that they're going to drop him. There was a kind of a big water damage claim that was pretty, pretty big. But I mean, you know, 18 years and with no claims whatsoever, the first one they did, they got dropped. So, you know, so it's really all the insurance industry with paying out all these claims, you know, there's, it's impacting all of us homeowners, you know, because we got to pay back to the premiums, essentially, you know. And you know, I think what we're coming up against because a lot of condos for many years, you know, they didn't have to worry about fixing up their buildings. But now, I mean, you know, some condos, you know, many condos, I'd say hundreds of condos are over 40 years old. Yeah. Right. Their pipes are failing. And what I'm hearing, and I'm hearing it from my own board, my own owners is, well, how come we've got to pay all this money? But you know, you've got a building where the pipes are failing and they've lasted for 40 years. And I think that that's a pretty good deal. And now, you know, what we're facing is we're facing a situation where boards have to make really, really, really hard decisions, mainly because they have to go back to their neighbors and say, guess what, guys, we've got to raise our maintenance fees. And it's not, we're not doing it to 5%. And you know, maybe this year, we're going to be doing 15% or 18%. You know, and right away, your neighbors are all mad at you, right? They think it's your fault. But you know, a lot of it has come because you know, boards just didn't want to do the hard, make the hard decision and raise your maintenance fees. But now, I think when, you know, you see, I know with my budget committee, when we sat down and looked at our budget, I mean, I mean, everybody else is going up in double digits. And here, over the last couple of years, we've been doing 5% increase, right? And so now it's gotten to the point where you actually have to fix the building, right? You have to fix the building. And if you had done it 10 years ago, it would have been cheaper, but nobody wanted to do it back then. And here it is, now things are failing. So you have to address it. And the price of insurance is also going, the price of it is based on, pardon me, upon the replacement value. So the cost to replace it, price of items is not the cost as it was to bill, originally bill, you know, and I read an article about and galvanized piping. So back in the 60s, there was a lot of galvanized piping that was used for the water, right? And they were thicker in nature. The thickness of the pipe was thicker because even your chaining fences, just to replace the rails, they're not as thick as the one that broke, you know? So I was reading this article and it said over the years, to keep the cost down, you know, rather than just increase it based upon that that thickness, they use less material, so it, you know, so that they can keep that price in that, in that same range rather than driving it up based upon that thickness. So the materials that you have today are not going to last as long as they used to before. So boards have to be careful, especially when they're doing repairs in units. Like what I learned off of the handyman versus contractor, where you don't use a handyman to replace your toilets, you know, or any kind of health and safety. So the only thing really a handyman can do, which I was really surprised to learn that, you know, I was really surprised. The only thing a handyman can do is snake a drain. And yeah, I was surprised. I was really shocked. I'm like, wow, because I'm used to handyman because I had one here and I go, oh, can you replace this toilet too? You know, I already had it in the garage and I go, you know, sure, you know, but so that was news to me. But but I can see that in a condo. In my condo, though, I've used a licensed plumber because I go, I don't want the damage, you know, it's going to be on you if you put it in wrong, you know. But in my house, because it's single family, I just use some because he was there. But, you know, in a condos, they got to be really careful about who they use, especially when it's, you know, going to kind of cause some kind of significant damage, even to do the ice maker line, you know, I think some of the stores that they deliver, they require you to have a licensed plumber to install the ice maker. They don't touch it anymore. Yeah. And, you know, now, you know, it's getting so much more complicated and so much more expensive. And, you know, and, and I guess that's what, you know, condo owners, you know, don't, I mean, because they're not there and involved in the decision making process, all they know is that their maintenance fees are going up. And, and, you know, that seems to be the driver. And, you know, what, what people don't understand is that, you know, repairs have got to be done. And for people who want to keep the can down the road, because they don't want to do it, they'll say, well, maybe next year we'll, we'll deal with it. I mean, but next year, between now and next year, your pipes could break. Or, you know, it's going to be worse, and it's going to be higher in price. Right. And they, I think they'll understand that, you know, they need to, you know, with, especially with aging buildings, if you have a problem, especially with water pipes, which we all know, I mean, there are problems with water pipes. And when you're talking about a 300 unit building, and your pipes start leaking, or they don't work correctly, I mean, you need to address it right away. And if it means replacing the entire thing, you've got to figure out a way to fix it. And if you want to be replacing your pipes, then you have to see what else you have to do because you don't want to be breaking the walls, going, you know, breaking into the walls more than once. Yeah. Yeah. Yeah. You know, that's what I'm, I'm hearing from a lot of these condos, you know, when they're talking about replacing their pipes and they're thinking about other things, you know, because they don't want to open up their walls more than once. Right. Yeah. It makes sense. So the job eventually gets bigger, but you're end up over the long haul, you're actually saving because you're only opening that wall once. And you know what? You can only break open a wall so many times, and then you're actually deteriorating the integrity of that, that area, you know, because you can only, like, you can only patch a hole so many times in another one. And after a while, it just kind of looks from me, you know, and people kind of understand insurance industry isn't what it used to be way back in the 60s or the 70s. Oh, you know, something broke. Oh, this are, you know, like a car accident. You just got a little D. Oh, it's called the insurance company. They'll, they'll fix it. And it is not the way it is way back when. So I've told some people, I go, you have to weigh your deductible versus the cost of fixing it yourself. You know, I go, sometimes it's cheaper just to pay for it yourself because what you suffer at the end is either being dropped or, you know, you're going to have a hefty increase that may not even, that increase might far exceed the actual cost of the repair, you know, because I've heard so many people go, oh, no, we'll just call the insurance company. I go, I don't work that way anymore. You know, and this insurance industry is also affecting the mortgage lending part of it as well. Like in Florida, there's a lot of people that can't get a mortgage for some of the sales because they can't get insurance. So it's going to, it's impacting here too, because the lenders now are starting to look at the budgets and the financials a lot more carefully and they're paying attention. They're going to look at the appraisal, especially if the appraisal notes any kind of deferred maintenance. You know, you're going to, that, that borrower, the buyer is going to be stuck. Same with the seller. They're going to be stuck with the company they can't sell. And you know, I think that's, I think what, what, what, you know, boards need to do is start educating, especially boards with, you know, in older buildings or, or, or boards, you know, where your building is maybe 30 years old, going on 40, you know, start educating your owners that, hey, let's do a building assessment. Let's find out what, what's there and start fixing it and, and, and let's set up a plan because we know from listening to other buildings, I mean, there's, you know, they, they waited until the, their systems failed. And by that time, you don't have a choice. You have to fix it. You have to fix it because if you don't fix it, nobody's going to ensure you, right? And then that means that you as a unit owner, you can't sell your unit because it's, it's not marketable. No, no lender is going to, you know, provide loans for a buyer to come in and buy your unit. That's what they don't understand. People don't understand that if you don't take care of this building, or if for some reason you, you, you have failures in the building structurally and you don't address it, it means that your units become less marketable. You know, and, and, and then the, can't get insurance. If it's less, if it's not marketable, you can't get insurance. You can't get insurance. You can't get a loan. I mean, it's like a, you know, it's big catch 22. It just, it's just cycle, you know, you can't get insure, you can't get your H06, you know, but then the board's requiring you to have your H06, you know, then you have a water leak and oh my God, you're, you're, you're literally like almost bankrupt because now you got to pay out of pocket for that repair and the damage to the units down below. So, you know, I think a lot more homeowner's got to be, they got to change the way of thinking, be a lot more diligent, especially when it comes to water stuff, because that does the most damage other than party fire, but you know, that affects us, you know, other units down the road. And if you deal with mold and all that kind of stuff, so it's just changing the mindset of people that insurance is not what it was way back when, and it's not the solution to your breakage problems. Right. And, and now, you know, insurance companies are becoming more, they're asking more questions, and they're actually coming out to the buildings to look at it, right. And I mean, when it was newer, they didn't care. I mean, they were just issuing policies, I guess, but now they actually come out, they look and, and, and, you know, they, and if there isn't a discrepancy, or if there is a problem, and the board does not address it and fix it. I mean, how do you tell the other owners, you know, that, you know, their building is in trouble, financial. Well, and then how, how is the board going to explain to the owners when they get this notice or the word gets out that the insurance came, came, company came and did a visit, and they decided then we're told that they got to repair blah, blah, blah. How is the board going to respond to the owners when the owners say, well, why haven't you guys been addressing these repair issues? What have you been doing with the money that we pay in every month? You know, that's the other side of the fence that the board has to, has to deal with. Right. I think so that's why I think it's, it's useful, you know, where, especially now with the internet, I mean, you have newsletters, you have a website for condos, you know, and, you know, and instead of waiting for the annual meeting to get the bad news that you have to replace your pipe system, and it's going to cost you, you know, $20 million. You know, you, you are, they, the, the owners are told gradually, you know, because unless somebody tells them, you know, they don't know, they don't know how old their building is. They don't know that, you know, there are many pipes or, you know, failures in the building. And all of a sudden, you know, they get this huge bill about replacing pipes. And it's like, how come you guys didn't tell me? I mean, that's the first thing they're going to say. And, you know, and, and the problem too with some of these condos, and, and it's typical that at least 50% are investor owned units. Right. So I mean, they're not even there. Yeah. They're not even there. And, and they're just interested in making a profit off of their units. And so the less they have to pay on those units, the happier they are. And the other dynamic, you know, you have investor owners who don't live there. And so their, their, their focus is to keep the cost low. And that is not helpful when you've got a situation where you have structural items that have certain useful life, and they don't last forever. And we all know that, you know, pipe systems, they fail. At some point they fail, you have to replace them. And it's not like replacing one piece of pipe. It's the whole system. Right. Yeah, you can't, when you get into plumbing, it's not, you can't just piecemeal it together. You actually impact the integrity of that piece of pipe. Because you can put a swab on it and then it clamps together. But it's not a guarantee, especially when you're in a high rise building, you got to kind of go a length longer span. It's really not wide because I know I had to replace my drain. And the plumber goes, this is the last time you can do it. You can't do it again. Because my tenant had, you know, the properties on the, on the beach, her kids came back and said, I'm using the outdoor shower. She rinsed off her kids in the bathtub. So it clogged, you know, the P chop of the drain. So we had to cut it out and replace it. And he said, you can't be doing this again. You know, so I had to be a little more diligent on my tenants, especially the ones with kids, one, there's a shower outside, there's even a hose outside. You got to use that before you come inside. And just like, you know, like even the investor old people, they got to be a little more diligent on their on their tenants on teaching them about, you know, certain things that they just can't abuse, or they take for granted that, you know, they don't own it. So it's like, okay, it's not my responsibility to repair. And I think one of the good things is the, the, the realtors, their new came out two years ago, their standard terms on their rental agreements, whereas the tenants are responsible for any kind of plumbing backups, because they're the one that backed it up, right? You know, so why should it be the owner that got to pay for the repair to get it cleaned out? You know, one of the other things to note to really, that owners got to be aware of, if you've been in a building that has very minimal increases in maintenance fees, to me, that's a red flag. Oh, yeah, that's definitely fine. Especially when everything else is going up in double digits. Yeah. So if you're in a building that has very little, middle increases every year, you know, and then now you're getting special assessed, you know, a year, the board was, was really not answering the crime, like, keep them low, keep them low, you know, low can't be forever, you know. And so you got to, you can't be mad at the board, so to speak, because you guys, you know, wanted it kept low, but now, you know, the whole big can of worms have opened up with all these repairs that are like imminent and even, or it could be emergency repairs. And now they have the special assess, you know, so I'm really wary when, like I was talking to one, she was a realtor and I go, yeah, our maintenance fees are only this much. She goes, well, that's good. I go, no, it's not. It is not good. I go, the way it has increased is that it didn't even increase the way it should, even to the cost of inflation, you know, so I go, I'd rather have the increases every month than a special assessment, you know, because that's a big chunk of change out of your, out of your, your, your savings, you know. And, you know, and with everything else going up and some, some things going up in double digits and some things going up even, you know, higher than maybe 10, 10 percent or even 20 percent. I mean, I don't know why people think that their maintenance fees in their condominiums are going to remain at single digit numbers. Now, mainly because the association has to pay market prices for everything else. I mean, they have to have plumbers and electricians and landscapers. I mean, they pay market prices. So if everything else is going up, then condominium owners, you know, cannot expect and, you know, their maintenance fees to be able to cover all these repairs. And the problem is, is kicking the can down the road. You know, yeah, you don't have to pay it this year, but next year, if everything fails, then you really don't have a choice and you have to do it. And then it's a, because it's a year later, it's going to be more money than if you had done it, you know, the year before. And that's the dilemma that people don't understand. And these people got to realize that if it's deferred maintenance for a long, long time, but when they, if they go out for the conicals out for a bank loan, they might not be able to get it. You know, there's, I know one project on the big island, I mean, they had a lot of deferred, then they couldn't, they did a special assessment. It was a huge assessment for each of the owners was really huge where most of them had to refinance just to pay it. And because of some, a lot of the deferment of the repairs, no bank will lend on them. Right. And that's the problem is that they think that nobody else is going to know their business. Yeah. Problem is, is that, you know, you know, if you have even a hundred unit billing, unless everybody pays Spanish, you know, for their units that we know that doesn't happen, mean people have to go to the bank. And so they're lenders though. I mean, the lenders, you know, know which buildings are in good financial shape and which buildings are not. Yeah. Right. And so it's kind of scary to know that, you know, that, you know, lenders, you know, have this information or have this concern with condos. And I know that this year, there were a lot of condominiums that were kind of, you know, I guess concerning because when it came time, you know, for the legislature, there were, you know, it came out, you know, that there was talk about, you know, some condominiums, you know, not being financially secure. Yeah. And everybody thinks that because we're required to set aside money for reserves, that that's some kind of a piggy bank, that that's going to be there to come in and rush in and save everything. But that's not what the reserves were for. Right. That's what they, you know, they don't understand that that money cannot be touched. And if they have to touch it, then that means that they are in more trouble than they think they are. I had a conversation with a lender. I've known him for a really, really long time because he knows that I'm in this condo thing. So he called me and he goes, what do I tell my borrower that's trying to buy a condo? And I said, well, if the maintenance fee today is 500, you know, and I said, I would almost qualify them on a higher maintenance fee to qualify because we, you know, the debt to income ratio is like 45. So, you know, and that's today. But if the maintenance fee goes up, because which is part of their qualifying, then that ratio, so the borrower is going to be a little bit like putting more money of their paycheck toward maintenance fees, they're going to have to stop buying certain other little things. And if people really want to get a culture shock on, or a real put into perspective, how inflation has impacted, I was at Home Depot the other day, I was walking in the garden area. Certain plans sometimes I'll buy it because it's the only $5. And I co if I'd kill it, okay, it's only $5. That same plan today is $2 more. I was like, okay, forget it. I'm not buying those plans anymore. It was $2 more. I mean, it was for the longest time, it would be like around $5, you know? And I was like, okay, no, I'm not. That's too expensive for me to kill it. So everybody is a party to this insurance dilemma. The lenders are the ones who know that steps have not been taken maybe to secure financing or to not invest in structural repairs that have to be done. Because boards, when they see, when they go out and get the numbers, it's scary because it's millions of dollars. And it's almost to the point where they say, we should not have asked. The problem is, if you go and do the ask, it's a public record. And you decide, okay, we won't do it because it's too expensive. If the following year, that building has a structural problem and let's say it partially collapses, guess what? Those board members who knew they had to do the repairs went out and got an estimate and decided, oops, we won't do it this year. We'll just kick the can down the road. Now they're legally responsible, personally responsible because they knew and they didn't take any that they sit on a board. They have to do share of duties. That means that they have to act in the best interest of the association and the owners. And you know, and one of their things is a separate pair maintain the structure. And if they took steps to try to do that, and they made a decision not to pursue it, and then something happens and God forbid somebody gets hurt. I mean, that's personal liability. It's not covered by insurance, at least the association's insurance. That means that all board members better have their own policy and an umbrella, a huge umbrella to cover them because they could be personally liable for deferring the decision to make those repairs. If it's something that you didn't know and it happens, then you can say, well, we didn't know. But if you knew when you started to take action and then you decide, oh, no, we'll put it off another year, that's a big exposure. The other thing they have to be cognizant is really carefully look at the reserves. Is there something missing that that should be in there? But maybe isn't, you know, they have to really carefully look, you know, like, like when the pipe issue came up years ago, it really wasn't in a lot of people's reserves, right? So now it's in a lot of people's reserves. So if there's another item, like maybe something that they installed like maybe 15 years ago, but it's not reflected in the years and the reserves, because it's not going to last forever, right? So they need to go back and analyze the reserves for maybe some other add-ons that they did that aren't part of the original, you know, original construction. They need to put, really take a look at the reserve components that they have, because there's really not like a standard kind of a list. You can add whatever you want into that reserve, you know? But, you know, because we're getting towards the end of our time, I think what we need to do is to counsel the listeners, and I'm assuming that most of our viewers are board members, that what they might want to do is they're sitting on the board of an aging building, is meet with their attorney and, you know, with their property management company, and maybe ask for a building assessment, and to figure out where they, you know, what condition this property is in. And if they come back and say, oh, you know, you should replace your pipes, and you should do this, and come up with a schedule, right? But you don't have special assessments, I start doing the repairs. Right. And it will make your bank happy, the lender will be happy. Our engineer do a structural engineer or an architect. Plan in action, a 10-year plan. Or you're going to be a IT plan, because I think it's going to take, you know, for those major components to get them under repair. And that being the costs are manageable. Yeah. Because you've got a plan and it's spread out over years. It's not something that your face was like, now, you know, and here it is, and your, your pipes are failing. It's not like you got a choice, you got to do something now. Right. And so, so now, the buildings are stuck with a huge repair, and probably they don't have any money paid for it. That's what's going to happen. Yeah. Well, hoping to be 2686 will pass. And, you know, it's kind of, is it meant for the people that cannot get insurance? Well, I think that's what it's, it's, you know, that's what they're trying to set up the fund for. Because the house, that house bill basically starts raising other fees to, to make, to, to, to, to establish a kitty in a state fund, like the hurricane relief fund. Yeah. I like the way they added in who has to pay into the fund. Because you're short-term rental people going to pay in, you're people that do the reservations for that type of things. You know, those kind of agencies got, time shares going to pay into them. You know, so it's not just your whole condo owners. It's everybody. Every mortgage that's recorded has got to pay into that. Your conveyance tax is paying a portion into it. So it's being shared by everybody, paying into it. Right. To establish a fund, so that in, in, in the case of, you know, a catastrophe, that there is money in case that there's not paying enough insurance. But, you know, since we, and I'm sure we can go on and talk more about this, and so we'll have to have another program on this. And probably at the end of the legislature, you know, to see if the bills pass. And so for those people who are, to those viewers who are, listen, you know, I would get on the email, your, what is it, www.Hawaii.gov, the capitol, the legislature. Capital.Hawaii.gov. Yeah. And, and support HB 20, what is it? 2686. 2686. And that's the one that, you know, basically holds in on the costs that, you know, associations have to pay for these expensive structural repairs. And so, so that's something that, you know, you can do. And it will, it might help you if you, if you're building is one that doesn't have enough funds and is faced with a catastrophic repair that they have to do. And I have some other states that are in a similar situation. I think they're also creating something similar for their particular state. So, boy's not alone in this. Okay. Yeah. We're not alone, probably Florida and Illinois. Right. California. Okay. Okay. Thanks Gene. Okay. So, for the viewers who have, you know, tuned in today, thank you very much for listening to this episode of Count on Cider. Thank you, Ray Lean as always, my right hand person who knows more about the pending bills than I do. And to our viewers and, and please get on the email and tell your legislator to support all spill 26th, 80th, 86th, 26th, 86th. Okay. Thank you. Thank you everybody. If you liked this show, why don't you give us a like or subscribe to our channel? Thanks so much.