Questions and Answers Regarding Hurricane Florence Special Assessment

The following are questions the Landfall Council of Associations Board has received from members of the Landfall community with regard to the special assessment levied in response to Hurricane Florence. Please reference the cover letter that accompanied that special assessment invoice, as well as the information below, regarding the expenses that we incurred due to damage to our common areas and the resulting special assessment.

Disaster Response

Q.    Why did the Council commit to restoration work and related expenses that are outside of the normal operating budget?

A.    It was in the best interest of the community to address the access, life safety, and private infrastructure issues immediately. Therefore, the Council authorized its staff to respond to the storm damage even before the storm arrived. It was not a viable option for the Council to wait until funding was established to commence the work.

Q.    What was your process for selecting the contractors who are working for us to complete the cleanup, road repairs, and        repairs to our infrastructure?

A.    Recognizing that reliable resources would be difficult to secure in the aftermath of the storm, we arranged contractors in advance to respond to the debris clean up, road repairs, and stormwater facilities repair that we anticipated would be immediately necessary. In selecting those contractors, we prioritized companies with whom we have an established history and level of trust. We also intentionally selected pre-vetted contractors, who were already familiar with our infrastructure and could therefore deal with the unknowns associated with the cleanup more efficiently. Because of our decision to select the contractors in advance of the storm, some of them actually had staff and resources available in the Council’s administrative office during the storm in order to respond to emergency situations and begin clearing the roads as soon as it was safe to do so.

Sources of Funding

Q.    Will the City of Wilmington or FEMA be assisting with the cleanup up within Landfall?

A.    Based on the guidance available to us thus far, Landfall will not be reimbursed by FEMA for debris removal or other storm expenses. FEMA has issued a disaster-specific policy for Hurricane Florence that established debris removal from private roads (except gated communities) is in the public interest. We will continue to pursue possible recovery from FEMA, but do not expect to be granted assistance. Please note that our claim with FEMA is independent of any that you may choose to pursue on your own behalf, based on damage to your home or other losses related to the storm.

We have pursued assistance from the City with regard to debris removal and will continue to do so. Notwithstanding the City’s policy against removal of collected debris from private gated communities, we successfully negotiated with the City, prior to the storm, to cooperate with Landfall to remove debris from a central location (specifically, the collection site behind the Landfall Council offices). Our estimated cost of debris cleanup for the special assessment takes that cooperation from the City (and related savings to us) into account.

Q.    Why is the Council not utilizing the balance in our reserve fund?

A.    The reserve fund has been established and cultivated over the years for the purpose of funding long term maintenance of our infrastructure (repaving roads, inspection and repairs to stormwater facilities, building roof replacement and other long term maintenance items, etc.). Those maintenance needs remain, and, based on our reserve study, we still have work to do to bring the balance of our reserve account up to meet those needs. The reserve is not, and never has been, intended to serve instead as a disaster relief fund.

We do not maintain a “hurricane fund” for the sake of response to catastrophic loss caused by natural disasters. Every disaster event is different, and the costs of response to the same are not predictable. It is not realistic, or economically responsible, to maintain a fund to cover the potential cost of catastrophic events. Furthermore, to maintain such a fund would require a substantial increase in assessments. There is no room in our budget to accommodate funding such an account. Finally, from a policy perspective, that approach would also unfairly shift the risk of storm damage to those who own property at the time the funds were collected, and away from the owners who own land in Landfall at the time of the storm.

Q.    Why do we not carry insurance for the risk of the kind of damages that we suffered to the common areas?

A.    We carry insurance for our shared common areas to the maximum extent that it is realistic to do so. Based on the advice and guidance of our insurance brokers and providers, it is not possible to insure the damages to horizontal improvements (roadways, sidewalks, and the like), and underground facilities, and storm debris cleanup costs, that we suffered in Hurricane Florence. These matters fall within standard exclusions to available policies, or are simply not available with any carrier.

Q.    How will insurance coverage mitigate the community cleanup costs?

A.    Insurance covers limited aspects of the damage to our common areas caused by the storm, namely the vertical building structures. Fortunately, the majority of our buildings sustained limited or no damage. We have filed a claim for the wind and rain damage to the Council of Associations’ office, and the anticipated recovery from our insurance carrier for the same is noted in the summary provided with the special assessment. We have also pursued a claim for damage to other structures: perimeter fencing, the Drysdale gate, the postal facility and others. The cost of these damages is relatively small relative to the total cost of the disaster response, and recovery from our insurer for these matters is uncertain. Nonetheless, we are pursuing this potential opportunity to help defray some of the total cost of the storm.

It is possible that your personal insurance coverage could cover some of your cost of the special assessment. Please investigate that topic with your personal insurance providers.

Q.    Does the COA have an emergency line of credit?

A.    The COA does have a $500,000 line of credit.

Q.    Why did the Council decide against borrowing money to respond to this disaster?

A.    The COA elected not to rely on its line of credit or other loan financing to cover the cost of the response to this disaster. From a policy perspective, borrowing against our future would burden the community for many years to come, and would essentially compel future owners to shoulder the burden of the damage caused this year. And, we decided that it would be fiscally inefficient to incur the transaction costs and interest payments necessary to borrow funds on behalf of all of the owners. Those who can pay their share immediately should not be compelled to incur the cost of borrowing.

Special Assessment Details

Q.    What is a “full share member” and how was the amount of my assessment calculated?

A.    The total anticipated funds needed to respond to the disaster are $3,825,000. The formula for allocation of special assessments is the same as that for the COA semi-annual assessments. The vast majority of lot owners (1,957 of us) pay the same “full share member” rate. Per the terms in their community documents, the owners in Colony Club each pay a 2/3 share. The Kenan Chapel pays a 1.05 share. And, the Country Club of Landfall pays 32 shares.

Q.    Will a detailed expense and accounting report be provided and made available to all owners?

A.    Yes. And, more importantly, please know that the Board is closely monitoring the expenses and working with our staff to manage the costs appropriately.

Q.    Why did you not provide a detailed expense report to the owners prior to levying the special assessment?

A.    We decided that commencement of the work immediately was in the best interest of the community, so that work could be completed as soon as reasonably possible. That decision necessitates collection of a special assessment based on a “best estimate” of the total cost. It was not a viable option for us to delay reestablishment of safe access and restoration of our infrastructure until we could assess the entire scope of the work and obtain a fixed price contract to complete that work.

Q.    If the amount collected on the special assessment exceeds the actual cost of response to the hurricane, what happens to the additional funds?

A.    Any additional funds would be transferred to our reserve account.

Q.    Why do we have to pay the assessment now, rather than after completion of the work?

A.    The expenses are being incurred on a daily basis, and billed to us promptly by the contractors. We do not have the luxury of waiting until the restoration is complete to pay for it. In order to get this volume of work done promptly and efficiently, we must be prepared to make timely payments to the contractors.

Q.    Is the special assessment going to cover the cost of removing trees from the golf course or any Country Club of Landfall property?

A.      No. The Country Club of Landfall is a separate entity and is responsible for their own cleanup and debris removal.