From: BRUCE LACOUVEE <BRUCE_LACOUVEE@telus.net>
Sent: Monday, March 26, 2001
To: Sandi LaCouvee
Subject: Sandi... Vancouver Sun March 26
DEALING WITH THE INVESTMENT FROM HELL
For a leaky condo owner, the choice is you shell out or you bail out
by Michael Kane Vancouver Sun
Ian Lindsay, Vancouver Sun / Chartered accountant Tony Mastrangelo go over the figures with leaky condo owner and activist Sandra La Couvee as they examine the options for losses generated by her Abbotsford rental property that has fallen drastically in value and requires repairs.
Try to imagine an investment from hell and you'd be hard pressed to come up with anything worse than a leaky condo in British Columbia.
Those who live in them likely have negative equity-their mortgages are more than the places are worth-and they are haunted by the specter of continuing repair assessments that the Strata Property Act says they must pay.
"The law really puts you between a rock and a hard wall," says Sandra La Couvee, co-founder of the Coalition of Leaky Condo Owners (Web site www.myleakycondo.com).
"You shell out or you bail out."
For those who stay, declining market values may not be an immediate problem-it may even mean lower property taxes-but there can be health problems associated with mould spores. There is also no guarantee that one repair assessment won't lead to more.
For those who bail out, bankruptcy offers a fresh start if they have few other assets; but walking away is fraught with peril for those who bought a condo as an investment property, only to become victims of the so-called building envelope syndrome that bedevils more than 50,000 B.C. property owners.
La Couvee sought a free Vancouver Sun Money Makeover, courtesy of the Chartered Accountants of B.C., to decide if she should hold on to an Abbotsford rental property that has fallen in value by 60 per cent since 1994 and now requires her to ante up $15,000 toward repairs.
It is little comfort that her Surrey condo appears to be sound.
The property, bought for $135,400 in 1996, is now assessed at $97,500, in part because of the collateral damage wrought by the leaky condo crisis.
It's a crisis that affects everyone in B.C., La Couvee says, by devastating the purchasing power not only of owners but also of countless parents, siblings and adult children who are digging deep to into their own pockets to help out.
There are also the societal costs of bankruptcy and the costs of providing interest-free repair loans and sales tax rebates through the provincial government's Homeowner Protection Office.
Other homeowners are affected by slower equity growth and higher property taxes while renters are paying the price of a shrinking marketplace all but abandoned by new investors.
North Vancouver chartered accountant Tony Mastrangelo says a leaky condo is typically an unforeseen and significant liability with unknown consequences. In advising La Couvee, who is the western office manager for a cosmetics company, he says the wild card is the potential for further assessments as contractors begin repairs that may expose bigger problems.
"If the assessments continue, I will have to declare bankruptcy," La Couvee says. "I will face foreclosure which will lead to bankruptcy."
Even if she could sell her $110,000 investment-and the banks are reluctant to mortgage leaky condos-the best it is likely to fetch is the assessed value of $45,700. After paying the $15,000 repair assessment, that would leave her with $30,000 to offset a mortgage of $90,000.
Since it is an investment property, the $60,000 difference would be treated as a capital loss and 50 per cent could be deducted against future capital gains. However, that's academic to La Couvee since she has no gains to claim, no other investments and she has sworn off real estate for life.
By selling, she would also likely be denied any subsequent compensation or aid that might be offered by the government or other agencies, and she would be locking herself out of any recovery in condo prices.
"Every time you look at your assets or your investments, you need to revalue them and ask yourself if there is potential for growth or dividends," Mastrangelo says.
"If there is, you hold on. If there isn't, then you discard the investment."
The value of the Abbotsford property has fallen so far that, with successful repairs and with time, it is reasonable to hope it will appreciate.
"At $45,000, it is probably worth hanging on to," Mastrangelo says. "It seems to be at the bottom of its value and it appears it can only go up from here."
Perhaps the best reason for La Couvee to hang on is that rent of $750 pays the mortgage, although there is a $265 shortfall when property taxes, maintenance and property management fees are included.
Mastrangelo says that deficiency is deductible against her regular income but it reduces her RRSP contribution room.
La Couvee, a 48-year-old single, is frustrated that if there is a third repair assessment and she is unable to pay, creditors could go after her RRSP nest egg of $75,000. She would also get stuck with the income tax bill if the registered funds were withdrawn.
As a single person without children, she can't name a spouse or dependent child or grandchild as preferred beneficiary of the registered funds.
"Normally if you have a beneficiary attached to the RRSP, it is creditor-proof, although judges have ruled on either side of this," Mastrangelo says. "It is unfortunate but it would be unwise to make further RRSP contributions in case creditors can take action."
Mastrangelo sees real potential to recoup some losses on the Abbotsford condo. "You are going to be better prepared to face this liability five years from now than you are today," he says. "You will have paid down more of the mortgage and the property value may have increased by $10,000 or $20,000. Instead of facing a $60,000 headache, it may only be $20,000.
"Today it means bankruptcy and all the consequences that follow. You would lose the RRSP, lose all creditworthiness and your standard of living might be impaired for the next six years or longer."
La Couvee says the Barrett Commission that investigated the leaky condo crisis has brought little comfort to owners so far.
"When one considers that every bankruptcy costs the province an average of $65,000, one cannot understand why the Barrett Commission recommendation of paying an average of $25,000 for repairs has been ignored," she says.
"In the end, dragging this matter on indefinitely will cost everyone much more, not to mention destroy the lives of thousands in the process."