Suspension of Participation Agreements
CFSIC will be in suspension beginning Monday, August 5.
We are this week reviewing a number of Participation Agreements that have been in line, chronologically, since the middle of June. We are closely monitoring the level of our remaining cash on hand from the two bond allotments CFSIC has received.
We do not sign Participation Agreements when we do not have enough cash on hand to pay for all of the remediation or reimbursement associated with each Participation Agreement we commit to.
We will reach that point on August 5.
The following Q and A is designed to assist homeowners, contractors, and others in understanding what will happen beginning on August 5.
Question: Is CFSIC going out of business?
Answer: No. It is paying claims on a daily and weekly basis. All its operations are underway and all support staff are fully engaged. Next week, for example, almost $1 million in approved Type 2 reimbursements will be paid on schedule; Type 1 foundation replacement claims are currently being paid, and will continue to be paid, with everything from “first shovel in the ground” work to final work preparatory to a family moving back in. We are operational.
Question: So if that’s the case, what will CFSIC be “suspending”?
Answer: We are suspending a critical part of our operations on August 5. This is the signing of any new Participation Agreements with homeowners, whether for Type 1 or Type 2 claims, because a Participation Agreement, once countersigned by the Superintendent, is a promise to pay. We currently have $36.9 million in signed Participation Agreement and operational agreement commitments on our books. My board has instructed me to maintain a reasonable cushion of cash at all times in order to remain fully operational. CFSIC is a licensed insurance company solely under the jurisdiction of the Connecticut Insurance Department. We run the risk of losing our license as an insurer if we do not maintain a reasonable cushion between commitments and cash. If we lose our license, the program shuts down immediately.
Question: I’m a Type 2 claimant and in line in this new fiscal year for my quarterly installments to begin. Are you going to stop paying me?
Answer: No. If you have a countersigned Participation Agreement, the promise to pay has been made, and we will fulfill that promise. You are accounted for in the $36.9 million figure noted above, and therefore we are already committed to you.
Question: I’m a Type 1 claimant and only one progress payment away from being back in my home. Is the contractor going to be paid for finishing the job on my foundation?
Answer: Absolutely…because a Participation Agreement was already entered into to begin with, otherwise the work never would have started.
Question: When you suspend part of CFSIC’s operations, when will the suspension be lifted?
Answer: We’re not certain exactly…but we have been in close communication with the Governor’s Office, the Department of Housing, and the Office of Policy and Management. Everyone we’ve spoken with in state government understands our cash position and the speed with which we are remediating. Based on helpful, positive, and collaborative discussions with leadership in state government, we’re hopeful to be out of suspension most probably by the first week in October.
Question: Why do we have to wait until October?
Answer: First, we have been told by officials in state government that the CT Bond Commission will next meet in September. The exact date of what might be a special Commission meeting has not been announced to us yet. Because it takes upwards of a week to ten business days for us to actually receive funds after a Bond Commission approval, we are being conservative in our estimate of the receipt of funds. This puts us, hopefully, inside the month of September or very early October.
Question: What will be the first thing that will happen when your funds are received?
Answer: We will engage immediately with the 61 homeowners who were in line as of July 25 and are therefore first in line for help (all of which are Type 1 severity coded 3 claimants); and we will, one by one, countersign valid Participation Agreements for each of them, permitting their work to begin almost immediately.
Question: But in some cases isn’t this work already scheduled in August or early September?
Answer: It is. We have communicated with all the contractors currently approved by CRCOG and asked them to assist homeowners in keeping work commitments as current as they can, and in helping homeowners reschedule. We have been transparent with everyone.
Question: Shouldn’t you be stopping homeowners from going out and signing a construction contract if you’re not going to be able to sign a Participation Agreement right away?
Answer: No. We have two choices: stop not only the Participation Agreement process, but stop the construction contract signing process as well; or, just stop the Participation Agreement process. Our board believes that a signed construction contract, even though a deposit on that contract by CFSIC cannot be made while we are in suspension, keeps the construction flow and scheduling going. It helps contractors plan their hiring. It enables them to go to a bank where they have loans outstanding for equipment and help that bank understand what will be happening in the future. It also sends a realistic message of hope. Remember…if we stop construction contract signing, then contractors don’t make any more investments in hiring and equipment. CFSIC does not want to play a role in negatively affecting any part of this process, including slowing it down.
Question: The homeowners who, right now, are in line with CFSIC (the 61 you speak of)…should they be finding a place to live right now for a possible move out of their home in October?
Answer: Our best advice is “no.” There is no crystal ball that tells us exactly the day on which we will receive approval for our next $20 million…as well as the exact day when that money will hit CFSIC’s bank account. It’s the way the system works, and we counsel patience. Again, state government officials are aware of our situation and are working collaboratively with us in every way.
Question: So when CFSIC comes out of suspension and gets its next $20M, won’t you have a lot of that money already committed with the 61 people in line?
Answer: Of course. We will very quickly commit to $9.6 million in Participation Agreements for these 61 homeowners. Not only that, but by the time we come out of suspension, we will have a minimum of 50 more Participation Agreements in line behind the first 61. This means, simply put, that approximately $17.4 million of the $20 million we will receive will already be committed. Please bear in mind, when you consider these numbers, that the Governor signed legislation on July 9 removing our constraints with regard to condos. Condo associations are now in line.
Question: So what will happen to those 50 or more claimants who come in after the first 61?
Answer: We will slow down the Participation Agreement signing process to no more than three per week through May 31, 2020 in order to preserve cash and make certain that we maintain our license as an insurance company.
Question: Why would you do that, when so many people would be waiting?
Answer: Because we do not expect to have access to any more funding from the CT Bond Commission in this fiscal year…which means before July 1 of 2020.
Question: But what about the money you’re supposed to get from the homeowners policy surcharge?
Answer: We don’t get that until June of 2020…when we do, we will keep the faucet open for the homeowners already in line, where we can provide assistance with the $8.5M we expect to receive in the month of June 2020.
Question: But by June of 2020 won’t you have many more people waiting for Participation Agreements than the original 61 plus the 50 more?
Answer: Absolutely. We are apt to have, in this fiscal year, beyond the first 61, as many as 150 or more in total claimants awaiting help…that’s 100 more than the 50 noted above…again, we cannot forget condos and PUDs; those applications are pouring in.
Question: Can’t CFSIC just borrow money from a bank and pay it back as it gets its future payments from the state and the surcharge?
Answer: We don’t see how. First, our balance sheet, which is more than $60 million insolvent, would not support a loan. Even if it did, there would be fixed points in any loan agreement or line of credit when we would have to make sizable repayments for anything we borrowed. We have, from the inception of the program in May 2018, never been able to fix any date certain or even year certain as to when we would receive funds to help homeowners, let alone receive funds to pay back a bank loan or line of credit on a specific day when a repayment installment is due. Lastly, the interest payments alone on such a borrowing could easily be the equivalent of the replacement of eight to ten full foundations. In my board’s opinion, borrowing is not only impossible…but is a bad use of taxpayer funds to begin with.
Question: You seem to be painting a very negative picture.
Answer: We disagree. CFSIC is restoring people to their homes, right now, today. We are improving the property tax base in the affected towns. We are doing our part to help the real estate market recover. We are helping to add jobs to the CT economy. We have been doing all this for the past seven months. We receive emails and phone calls each day thanking the team for our efforts.
Question: What can the public, including affected homeowners, do to help?
Answer: Two things. First, do not attempt to impose artificial constraints on our underwriting process by writing to state officials. Our process works, and CFSIC is a private corporation. Second, CFSIC will be publishing an annual report on this website at the end of August, which will include the best data to be found anywhere on the extent of this crisis in CT. What this crisis needs is more data and fewer guesses. This crisis is not helped by unrealistic estimates as to the extent of the first wave of remediation needed. Realistic estimates, expressed in social media and elsewhere, of the cost of this first wave of remediation will help CFSIC raise funds from other sources, even potentially from the federal government. Unrealistic estimates will close the door in our face, which is what is happening now. Only $25 million more in funding fixes 163 homes; $50 million more in funding fixes 327 homes. Our board believes that this crisis is best addressed by data, by facts, and by a realistic approach to saving families one home at a time.
Question: Who do I contact with my questions or concerns?
Answer: If you are either an active or inactive claimant, your best point of contact is our claim adjustment professionals at ESIS. You can reach ESIS by email at firstname.lastname@example.org or by phone at 844-763-1207.
Where We Are
CFSIC has received 839 applications as of July 26. That’s more than 100 new applications in 30 days. Of that number, 457 are active claimants for Type 1 claims, and 71 are active for Type 2 claims.
Total incurred claim activity is $98.6 million. The liability for our active claims is $79.8 million.
CFSIC has received $40 million in cash to date.
Sunset of CFSIC Foundation Re-examination Program
The CFSIC-sponsored foundation re-examination program will sunset on July 31, 2019. Work being undertaken now or requested now up to July 31 will continue to be paid for by CFSIC as part of its outreach to homeowners who had engineer visual examinations conducted, at some point in the past, but where no severity class code had been applied.
As mentioned above, until July 31 we will continue to honor and pay for re-examinations done by the engineering firm found in Section 12 of the “For Homeowners” section of this site.
Given that all CT-licensed home inspectors are now educated in the importance of severity-coding foundations, and all 47 CFSIC-certified home inspectors are appropriately trained, there is no reason for us to continue the re-examination program.
If you have any questions about the operation of the program, ESIS is your best source of information on your claim, and their phone number and email are shown below.
As you work through the information and application process, here’s how you can get help:
– Call ESIS (the claim adjuster) at: 844-763-1207
– Email ESIS at: email@example.com
– Email CFSIC at: firstname.lastname@example.org
Michael Maglaras, Principal
Michael Maglaras & Company