Their retirement plan did not include being forced to sell their condo

Howard Fellman with his wife, Melissa Sobel, in Boca Raton, Fla., on Jan. 31, 2023. 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.”

By Anna Kodé

In 1992, Howard Fellman bought a condo in Boca Raton, Florida, 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 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 to a house 4 miles away so their twins could grow up with a backyard. But they always planned to return to the condo, so they held on to it, renting it 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,’” Melissa Fellman, 50, said. “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 that renovate, convert or rent them out — is on the rise. In 2021, investors accounted for nearly one-quarter of home sales, up from around 15% 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 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 homebuyers reached its lowest 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’

Howard Fellman said the investor, Pennsylvania-based Scully Co., 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,” 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, Fellman, 57, was confident that things would be fine, since he legally owned the property and the condo declaration required that 100% of owners would need to be on board for the condominium to be terminated.

But the Scully Co. didn’t stop there. Because 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 to 80%. In February 2021, Scully 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 their condo, the Fellmans sued the investor in September 2021. But a county judge sided with the Scully Co. 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 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,” 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.”

Scully acquired the other 175 units in 1997 and has since rented them out to tenants. For over two decades, 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 Co. said in an 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 Co. 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, 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,” 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, 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,” 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, etc.?”

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% ownership for developments with four or more units.

The current version of Florida’s Condominium Act requires approval from 80% of the total voting interests of the condo, with less than 5% opposition, for a condo termination to proceed.

While the state law was changing over the years, the rules for termination in Crystal Palms’ condo declaration, a legal document filed with the county, remained the same — requiring 100% owner approval. That is, until the Scully Co. voted it down to 80% 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 more than 26,500 units 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 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 Co.

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.

Looming expenses

In Florida, McKenzie expects that condo terminations will rise in the coming years. Following the deadly Champlain Towers condo collapse in Surfside in 2021, the state passed legislation that mandates costly safety reforms. Starting in 2025, older condo buildings will have to undergo regular inspections and 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 to pay the additional expenses for these maintenance mandates or don’t want to will be more inclined to sell to 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,” 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.”