Florida termite protection plan

My apologies in advance because this is really long.

Our subdivision took 9 years to build out the 100 homes. We weren’t built as a “phased” community, it just took that long to get it done what with developers going out of business and general economic conditions during those years. The developers had a 1-year warranty on the homes and when that year was up they would get “Big Termite Corp” (let’s call them BTC - you know who they are, everyone hates dealing with them) to bond the homes for a yearly fee. The developers did this because the lengthy build-out had a lot of construction materials sitting around the property for a long time, and some of that was wood and thought to pose an increased risk of termites.

Once all the homes were built and the developers were gone, the HOA kept that contract going with BTC. To this day the association pays $100 a year for each of the 100 homes to be covered under the bond. Yearly inspections are included and BTC does send someone every year to do them. The bond also covers our 4 HOA buildings. The total cost is included in our yearly budget and the owners pay for it through regular assessments.

They say there are 2 kinds of homes in Florida: those that have had termites and those that will have them in the future. There have been occasional termite problems in some of the homes here, and BTC, after much cajoling, has kept their end of the bargain and paid for the repairs and restoration under the contract. (It is said that BTC’s lawyers know more about termites than their technicians.)

Now a couple of our directors want to drop the 100 individual homes from the bond/plan/contract and let the homeowners fend for themselves. The coverage on the HOA-owned buildings would be retained. My research shows that there’s no way the homeowners will be able to get the same kind of “protection plan” for $100 a year. There will likely be a one-time fee of several hundred dollars (at least) for every home and then additional annual fees that may run as much as $200 to $300 a year.

Many owners are going to scream bloody murder about this proposed change, but our CCRs say nothing about providing a “termite protection plan” for everyone. On the other hand, the CCRs incorporate by reference the Articles of Incorporation whch say that one of the purposes of the corporation is to “…to do any other thing necessary or desirable in the interests of the safety, health, protection, comfort and convenience of property owners and residents”. So it seems the HOA is legally able to provide this service, even though it’s not explicitly called for in the CCRs.

The final thing in these directors’ plans about this issue is what bothers me most. Instead of dropping the $10,000 from the annual budget and leaving that money in the owners’ pockets to obtain their own termite plan, the directors propose setting up a “reserve account” that the $10,000 will be placed into each year for the purpose of “self-insuring” against termites in the residences. This seems wrong to me on many levels. If the CCRs don’t say that the HOA has to pay for termite protection on all the homes then they certainly don’t authorize the setting aside of that same money as an item in the reserves budget. Even if such a fund was appropriate, the reserves is absolutely not the place for it.

My preference would be that if we drop the homes from the BTC Termite Protection Plan then the residents are on their own and the $10,000 annual cost for it comes off the budget and we’re done. None of this shady “reserve” for termite self-insurance. Anyone have any thoughts about this proposed course of action? To me, it’s a really bad idea.

Why do they want to drop the coverage?

Is it due to the number of delinquent accounts?
Is it due to the desire not to raise assessments?
Is it due to funnel the saved monies into another area that needs attention?

There is some reason behind this plan that you didn't really explain. You only explained the plan.

Based on what you provided, I agree, the plan may not be the best. It's always a gable on "self-insuring" anything. However, many individuals, entities and even the federal government do self insure. Therefore, it's not uncommon.

My suggestion is get to the reason for the proposal and offer other alternatives to address the actual issue.

As for the termite issue, one option could be to renegotiate the contract for just the clubhouse and a lower price or the same $100 price for any homeowner that desires to continue (but if they opt out of continuing, they will not get that same price).

Melissa, I also think a members meeting would be a good thing. The president has said this is a possibility and he's one of the proponents of the idea.

Tim, that's a question I need to ask, i.e. Why?

We have no delinquent accounts, there's always a desire to not raise assessments, and while I believe there are certain reserve accounts that we need to have that we don't, I'm the only one pushing for those. As far as the other diretors are concerned the reserves as a whole aren't in terrible shape. This year 24% of our assessments are going into the reserves. So I don't think there's a hidden agenda to funnel the money into something else.

JohnC, the HOA buildings are common (clubhouse, mail house, maintenance bldg and the gatehouse). We have an unusual arrangement here with our insurance. We are a chapter 720 HOA but, as per the original 1988 covenants, the association is responsible for painting the homes and the maintenance, repair and replacement (we reserve for those) of the roofs. There's a master insurance policy and homeowners just need to purchase condo-type insurance. The insurance section of our CCRs was written with Florida condo-style insurance in mind. We're a hybrid of sorts, an HOA with elements of a condominium.

I shouldn't have used the word "shady" up above. Ill-advised is probably a better way to describe it. The ones in favor of doing this are, as far as I can tell, trying to do the right thing. The right thing in their minds is to stop wasting money by giving it to the termite company and getting very little in return. Over 20+ years we've paid them more than $200,000 and gotten maybe $15,000 worth of repairs under the terms of the contract. The thinking is we could do better than that by managing the risk ourselves. I sympathize with the sentiment but I think it would get complicated really fast.

Who would have a claim on that fund? Mary up the street finds termites and contacts the maintenance committee who schedules an inspection and pays a couple of thousand dollars to remediate. Fine. What about Jose a few blocks over who ignores evidence of termites for several years and needs $75,000 of work to treat and repair the damage?

Telling owners, "We've got you covered" would be a disincentive to them going out and obtaining their own termite pest control plan. What will lenders think of that when considering a mortgage for a buyer? I know in my case, personally, I will spend the money for my own coverage regardless of what the HOA does simply because while I trust them to TRY and do the right thing, I don't trust they will actually DO it. There's no way I want to be at the mercy of a self-insurance plan that's poorly thought out and haphazardly administered. Maybe I'm being too paranoid.

It could be done, but knowing how things work around here there will be minimal effort put into an official policy on when the HOA is responsible for paying out of the termite fund, who is eligible to make a claim and what is the procedure for it, and who will be making the decisions. Naturally the board is responsible for making the ultimate decision, but I can almost guarantee future boards will defer to the "expertise" of somebody and accept their recommendations without question. An amendment to the documents would probably be in order.

I really don't know what to think. Good thing the next meeting isn't until the last week of September because it gives me plenty of time to think about it.

Thank you, Larry, that is very insightful. I made a note to myself about "duty to inspect" and I agree 100% that it will fall of the radar before too long. No matter how bad the current termite company is they are still doing annual inspections and regardless of how thorough they are, it's better than nothing.

I've spent more than a few hours this week doing online research and one thing I've learned is they are a major cause for concern in this part of the country. It's commonly accepted that termites annually cause more economic damage than fire, flood and windstorms combined. If you insure against those risks, why not termites as well?

I like the "preventive maintenance that will be lost" angle, too. Thanks again!

The very first one was built in 1989 and they are all CBS. When we moved to Florida that was the only thing we insisted on. The roofs are all wooden beams and trusses, though. Lots of lumber up there.

I would prefer prevention also, but even with preventive treatments, annual followup inspections are the norm. And you still have to keep an eye out because there's one species that will do extreme damage in less than a year if allowed to do their thing unnoticed.

Thanks, JohnC46. Your HOA sounds very similar to mine. Our docs also place responsibility on the owner where the owner's own negligence causes damage. What you have proposed, i.e. the HOA worries about the HOA-owned buildings and the owners worry about their individual homes, is also what I think is a fair arrangement.

That's what I plan to propose in the next couple of months. I don't think the owners are going to like the idea of a "self-insurance" fund at all. In fact, calling it "self-insurance" is dangerous since Florida has very specific language in its HOA law that defines what "self-insurance" means, and what has been proposed is more like a slush fund than an actual "self-insurance" plan. So I'd drop that completely, eliminate the $10,000 from the budget and tell the owners that the HOA is no longer carrying a termite protection bond on their homes.

The devil is in the details, though, and there are complications even with that. The first is we have 25 duplex buildings (attached homes) that share a common roof structure. The owners of both sides in a duplex would have to jointly agree to a protection plan for the single building that contains both of their residences.

Another complication is the physical realities of the treatments used today are going to send the tree-huggers on the landscape committee into a frenzy. And I use the term tree-hugger affectionately Hey, I like trees and plants and shrubbery too. But if a resident purchases a pest control plan and industry best practices say a bunch of bushes have to be (re)moved then landscape aesthetics have to take a back seat to protecting peoples' investment.