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An investor-owner took over a condo board, terminated a condo declaration
and is now requiring a couple to sell their condo in what one expert
called “a private form of eminent domain.”

In 1992, Howard Fellman bought a condo in Boca Raton, Fla., for $65,000.
And after he met his wife, Melissa Sobel, just a few years later, the
couple made the condo their first home together. They experienced many of life’s important moments there, sharing their first kiss in the condo
complex parking lot.

The condo fit their lifestyle well — it was just across the street from
Mr. Fellman’s family business (a computer training school), they could
walk to their favorite bagel spot and they’d marvel at the monarch
butterflies that were attracted to the garden. In 2004, right before they
had children, they moved out and into a house four miles away, so their
twins could grow up with a backyard. But they always planned to return to
the condo so they held onto it, renting to a trusted tenant and looking
forward to retirement there.

Now, that retirement plan is at risk. Their condo is one of 176 units in
the sprawling development known as Crystal Palms. An outside investor
bought 175.

This puts the Fellmans in a situation that many condo owners are facing: a forced sale. “After that, they basically said, ‘you’re out,’” said Ms.
Fellman, 50. “It’s one thing if your property’s being taken for public
good. But this is strictly for a private investor’s profit. And it’s like,
why does their investment have more value and power than us?”

Throughout the country, the share of houses being bought by real estate investors — including large institutional ones who don’t live in the
homes and instead renovate, convert or rent them out — is on the rise. In
2021, investors accounted for nearly a quarter of home sales, up from
around 15 percent for each previous year going back to 2012, according to
a Stateline analysis. In Florida, investors bought nearly 116,000 homes in 2021, double the amount from 2020. This practice, which disproportionately affects Black and Hispanic neighborhoods, drives up housing costs,
displacing people and making starter homes even more inaccessible.

The Fellmans’ struggle speaks to the uncertainty and risks that come with
condo ownership. For many Americans, the prospect of owning a home today
seems especially bleak. In 2022, mortgage rates hit a two-decade high, the median home price topped $400,000 for the first time and the percentage of first-time home buyers reached its lowest point since 1981. Condos are
often seen as the affordable, low-maintenance way to own a home in this
tight market, but as the Fellmans’ story shows, there are limited
protections for condo owners.

“Condos are the bottom rung on the housing ownership ladder, and they’re
very important for that reason,” said Evan McKenzie, a professor of
political science at the University of Illinois at Chicago who studies condominium associations. “This could be the affordable housing that a lot
of people need, but they don’t have the institutional support to succeed.”

‘A private form of eminent domain’
Mr. Fellman said that the investor, the Pennsylvania-based Scully Company, never gave him a formal offer before the forced termination plan was
filed. “On one occasion, at the completion of an annual board meeting, I
was asked publicly over speakerphone if we would consider selling,” Mr.
Fellman said. “I invited them to call me privately to discuss, but no one
ever did.”

Despite the inkling that the investor might want him out, Mr. Fellman, 57,
was confident that things would be fine, since he legally owned the
property, and the condo declaration required that 100 percent of owners
would need to be on board for the condominium to be terminated.

But the Scully Company didn’t stop there. Since it owned all the other
units, it was able to take over majority control of the condo board, and
it voted to lower the threshold of owners required to terminate down to 80 percent. Then, in February 2021, the Scully Company voted to terminate the condominium, which meant the Fellmans would be legally obligated to sell
their unit to the company.

Hoping to save their retirement plan and keep ownership of their condo,
the Fellmans sued the investor in September 2021. But a county judge sided
with the Scully Company in April 2022, writing that “anyone purchasing a condominium unit goes into the relationship with their ‘eyes wide open’
that their rights under the Declaration, including the percentage vote
required for termination, could be altered by an amendment.” The Fellmans
are now appealing the decision. Legal bills are adding up, but the couple doesn’t want to give up.

“You can’t take it, it’s not yours, it’s ours,” Mr. Fellman said. “And we
don’t want to sell it, we have plans for it ourselves. We think that part
of ownership is not only the right to buy it and use it and enjoy it, but
also not to sell it if you don’t want to.”

The Scully Company had acquired the other 175 units in the development in
1997 and has since rented them out to tenants. For over two decades, Mr. Fellman and the company coexisted peacefully.

“We’ve honored the condominium structure for more than 25 years. As a
result, we have double accounting work and hold regular condominium
meetings,” a representative for the Scully Company said in email. “We
have, from time to time, inquired about purchasing Mr. Fellman’s unit
because of the additional expenses it causes. We approached the situation
with offers that would be mutually beneficial to both parties.”

The Scully Company manages dozens of developments in Pennsylvania, New
Jersey, Connecticut, Massachusetts and Florida. A one-bedroom, one-
bathroom unit in Crystal Palms goes for $1,735 per month, the company
said. Three-bedroom units rent for $2,670 to $3,340.

Typically, real estate companies that acquire condos in this manner knock
them down and convert the property into smaller, higher-density
apartments, Mr. McKenzie said. This process is known as “deconversion,” he noted, calling it “a private form of eminent domain.”

“Many states have added provisions that the investor wouldn’t have to get
every single unit to dissolve the association, to avoid the situation
where there’s one holdout who could stop it, like when a person refuses to
sell their house, and there’s skyscrapers all around them,” Mr. McKenzie
said. “If you got to a certain percentage of the units that were owned by
one investor, then the state could make the other people sell.”

The intention of those provisions, Mr. McKenzie added, is to prevent a
scenario where a single holdout owner is able to block a supermajority of owners from selling the building, especially in the case of dilapidation. “Without this provision, it would require unanimity to sell the building,
which is very hard to get,” Mr. McKenzie said. “If a condo building falls
into serious disrepair, should one owner be able to force all the others
to stay locked into the project, even if they can’t afford to fix it, get
it up to code, et cetera?”

Mr. McKenzie, who tracks deconversion in a database, said he’s observed hundreds of condos being deconverted to apartments in Illinois over the
past decade. Legal requirements in Illinois for deconversion include a threshold of 75 percent ownership for developments with four or more
units.

The current version of Florida’s Condominium Act requires approval from 80 percent of the total voting interests of the condo, with less than 5
percent opposition, for a condo termination to proceed. In 1979, the act required the consent of all of the unit owners, which was in place when
Mr. Fellman bought his condo. The share of owners required to approve a termination was reduced initially in 2007 to help owners get out of
failing condo projects that were damaged from natural disasters, but this eventually became a pathway for developers to take over condominiums more easily. In 2017, to help combat developers taking advantage of this, the
state added that only 5 percent of owners would need to oppose a
termination for it to be halted.

In 2014, Republican Senator Rick Scott, who at the time was the governor
of Florida, wrote in a letter to Florida’s Department of Business and Professional Regulation that he was “deeply concerned” about the 2007 law.
“The law appears to have negatively impacted a number of families
throughout the state, leading to the loss of their homesteaded property,
and in many instances, resulting in the financial burden of remaining
mortgage debt after the sale of their condominium,” Mr. Scott wrote.

While the state law was changing over the years, the rules for termination
in Crystal Palms’s condo declaration, a legal document filed with the
county, remained the same — requiring 100 percent owner approval. That is, until the Scully company voted it down to 80 percent in 2021, after taking
over majority control of the condo board.

According to Florida’s Department of Business and Professional Regulation,
over 360 condominiums, containing over 26,500 units total, have been
approved for termination since 2012. Last year alone, the state had 23 terminations, encompassing nearly 550 units.

With these kinds of sales, Florida’s condo termination statute states that
the original owners should be given “fair market value” for their
respective units. However, the statute also makes clear that the pricing ability goes to an appraiser selected by the termination trustee, or in
this case, the Scully Company.

The appraiser the company hired assessed the Fellmans’ unit at $200,000.
But its Zestimate — Zillow’s home value estimate tool which takes into
account square footage, location and market trends, among other factors —
gives the Fellmans’ condo an approximate worth of $323,500.

‘I can’t just start over’
In Florida, Mr. McKenzie expects that condo terminations will be on the
rise in the upcoming years. Following the deadly Champlain Towers condo collapse in Surfside in 2021, the state passed legislation that mandates
costly safety reforms. Going into effect starting in 2025, older condo buildings will have to undergo regular inspections, having to rectify maintenance issues that have been deferred for decades in some cases.

Condo associations will also be required to reserve funds for future
repairs and upkeep. Unit owners who can’t afford or don’t want to pay the additional expenses for these maintenance mandates will be more inclined
to sell to outside investors, giving developers more opportunities to buy enough units in condominiums to eventually terminate them.

“To the extent that moderately priced condominiums are the target of deconversions, this phenomenon has the potential to reduce the supply of affordable, entry-level housing for new home buyers,” Mr. McKenzie wrote
in an article in the John Marshall Law Review. “Deconversions are evidence
that some condominium developments are no longer financially viable
because most of the owners would rather sell their units than continue to
fund repairs.”

While the Fellmans are distressed about what this could mean for their financial situation and retirement plan, they’re also concerned about
their tenant, Jodi Viscel.

Ms. Viscel, 50, has three children and has been living in the Fellmans’
condo since 2012. The fact that it’s a first floor unit is ideal for her,
since she’s disabled. Because she receives housing assistance from the government, she only has to pay $137 in rent each month.

“If I’m evicted, I don’t know if I’ll find somewhere else to go, because
it’s really hard to find places with Section 8 that are nice,” Ms. Viscel
said. “This is a perfect spot for me and my kids. We’ve been here a long
time.”

“From my point of view, it’s very scary, because I don’t know if I’m going
to lose the place I’ve been living in for the last decade,” Ms. Viscel
said. “I’m just praying that it’ll work out. It would just turn me upside
down if it doesn’t. I can’t just start over like that.”

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<https://www.nytimes.com/2023/02/24/realestate/florida-condo- deconversions-lawsuit.html>

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