Monthly Archives: March 2012

Everything’s Not Coming Up Rosy!

C.U. from Middlesex County writes:

I am being fined by my condo association for planting roses in front of my unit. There is a small patch of garden that once grew some type of ugly ivy that died off a few years ago when my building was sided and the siding installers trampled all over the planting area. I was tired of looking at mud so I planted three small rose bushes. I got a letter telling me I can’t plant anything there and that I will be fined $25 per day if I don’t remove them. I want to fight this fine and keep my roses. What can I do?

Mister Condo replies:

C.U., I am sorry that your beautification efforts have come to this. I can see where you felt justified in planting roses in your trampled flower bed. I can also see where your association doesn’t want you (and all of your other neighbors) deciding on their own what type of flowers to plant in front of their units. This is not an uncommon problem in condos

We need to start at the beginning. The condo hired a company to install siding on your building. I am pretty sure that the contract didn’t ask for their workers to trample your flower bed but it sounds like the flower bed was damaged during the siding installation. Once the siding work was completed, the flower beds should have been replanted. It is possible that the association is planning on doing this work but hasn’t yet done so or it is possible that this work has been overlooked. Did you ever call your property manager to complain about the trampled flower bed? That should have been your first choice.

Almost all condos have rules about what unit owners can and can’t do regarding building exteriors. These rules cover everything from colors of front doors to regulations about wind chimes and everything in between. These rules also have enforcement procedures which is what gives the Board their teeth in enforcing these rules. Ultimately, enforcement of the rules is in all unit owners benefit so it is important that the Board have the ability to enforce the rules. Unfortunately, the nature of your offense hardly seems worthy of the fines they are threatening against you.

Sometimes, there is a common ground solution that makes sense to all parties. First off, I would remove the roses that you’ve planted. This is a sign that you are willing to work with the Board to fix the problem. Second, I would petition the Board to immediately repair your damaged flower bed. They may choose to simply plant ivy to replace what was originally there. If ivy is the choice for flower beds throughout your condo, so be it. However, the Board may be open to a suggestion from you that they consider roses or other colorful flowers to help beautify the common grounds. Beautification benefits all residents with increased curb appeal and a more pleasant living condition. You’ll never know if you don’t ask.

The lesson to be learned in this is that living in a condo is not as simple as living in your own home when it comes to making changes to your home, especially when it comes to building exteriors. Going it alone is a formula for disappointment. Maintaining a community’s architectural integrity and landscaping is one of the Board’s duties as outlined in your condo’s rules and regulations. It is one of the reasons so many people are drawn to the condo lifestyle. Work with your Board to bring about change. Volunteer to serve on a Beautification Committee or ask to create one if there isn’t one. Volunteer to serve on the Board if you want a first-hand look and say on how the property looks. You may just find everything come up roses!

Does Father Know Best?

L.D. from Fairfield County writes:

My fiancé and I are looking at homes to purchase and we are seriously considering a condo. We both work crazy hours and the idea of having the property maintained for us is very appealing. However, my father has warned me not to buy an older condo because there can be hidden expenses and special assessments that could cost us thousands of dollars. Obviously, I don’t want to buy a money pit. Do you have any advice to help me avoid a mistake?

Mister Condo replies:

L.D., congratulations on your pending nuptials! I hope whatever home you decide to purchase makes both you and your new bride happy!

Your father’s concerns are valid and whatever type of property you decide to purchase brings with it inherent financial risk. All houses are subject to aging. Aging means required maintenance. That could be anything from a new roof to a new furnace to new windows. Depending on how expensive these items are a new homeowner could find himself paying for a lot more than just the new mortgage. It’s important to ask these questions BEFORE you make a decision to purchase. I always advise potential condo buyers to download the free copy of “What to Know Before You Buy” from the CAI website at http://www.caionline.org/info/readingroom/Publication%20Excerpt%20Library/community_matters.pdf. The guide is chock full of questions you should ask about the association before you decide to buy your condo unit. When you buy a condo, you are buying more than the four walls of your unit. You are entering into a community association which is not unlike investing in a business.

Once you’ve found the home of your dreams (or the one you can afford as a young couple), it is important to have a proper inspection. When buying a condo, that should include inspecting the association’s finances as well. If everything appears in order then it is likely safe to proceed. However, if there are unanswered questions about what maintenance projects are on the horizon and how will those projects be paid for, you’d be wise to heed your father’s advice. Happy house hunting!

Co-op Quandary

Anonymous from New Haven County writes:

Dear Mister Condo,

I serve on the Board of my co-op and have done so for several years. I am concerned that because they are so few co-ops in our state, unit owners and even the associations itself largely goes unprotected and unrecognized. Everyone knows what a condo is but few know what a co-op is. Do you have any ideas on how co-ops can get better protection and recognition for unit owners and the association as a whole?

Mister Condo replies:

You are right that there are far fewer co-ops than condos in our state, Anonymous. However, there are not so few that you can’t find resources specifically dedicated to housing co-operatives. At the national level, there is a wealth of information available online at the website for the National Association of Housing Cooperatives (http://www.coophousing.org/). Regionally, the Cooperative Housing Association of New England, also known as CHANE, offers great local information and resources including local workshops. Their website is http://www.CoopHousingNewEngland.org. CHANE is located right here in Connecticut! If you haven’t already done so, you really should take a look at their “Roles, Risks, and Rewards” training program for Board members and others interested in co-op governance. Finally, the Community Associations Institute offers resources both nationally (http://caionline.org) and locally (http://caict.org) that are readily available to you.

As for recognition, 2012 is your year! The National Association of Housing Cooperatives has proclaimed 2012 to be the “International Year of Housing Cooperatives”. The stated goal is to raise awareness of the value of housing co-operatives at local, state, national, and international levels. You can read more about it at the NAHC website or download the newsletter describing the movement in PDF form at http://www.coophousingnewengland.org/images/CHB_7-11.pdf. One of the ideas to promote cooperative awareness is to hold a local celebration. I don’t know anyone who doesn’t enjoy a party! Why not schedule your own celebration and contact your local media to cover the event? Be sure to invite your local elected officials as well. You’ll raise awareness and have an opportunity to discuss your issues with fellow co-op residents in an open and fun environment. Save me a slice of cake, please!

What is A Certified Audit?

B.K. from Tolland County writes:

I read in our latest condo newsletter that our condo records were going to receive a certified audit. My husband used to serve on the Board and they conducted their own audits of the financial records. What is a certified audit and why do we need one?

Mister Condo replies:

B.K., Certified audits are quite different from self-audits performed by Board members like your husband. To give you a more thorough answer, I asked Sam Tomasetti, CPA of Tomasetti, Kulas & Company, P.C. to give us a proper answer. Here’s what Sam had to say:

Certified public accountants are licensed under state law to allow them to give their opinion about financial statements.  There are three basic types of opinions that are allowed.

The highest level of assurance is the audit (sometimes we hear this referred to as a certified audit).  The audit opinion of the certified public accountant states that the information provided by the association is presented fairly in the financial statements.  It does not mean that the information is presented perfectly. The process of auditing is one based in balancing the cost of testing selected transactions and in not verifying each transaction.  The end result is useful information at a reasonable cost.

The lowest level of assurance is the compilation.  The compilation opinion is given as an observation that the information in a set of financial statements is in an acceptable format and nothing was noticed that would not be present in any typical residential condominium association.

In between the audit and the compilation concepts is the review level of assurance.  A review is when the certified public accountant gives an opinion after analyzing the records in a way that is in more depth than a compilation but less detailed than an audit. For instance, the accountant may look for budget variances and attempt to explain them but may not need to go into the source documents in the way an audit might require.

Why am I paying for this?

mc_money

R.B. from Hartford County writes:

My husband and I bought our condo when it was brand new almost 5 years ago. We have loved living here as the common grounds include a pool, tennis courts, and walking paths. Last year, Phase II was developed and the new units offered for sale. Apparently, the developer who was doing the construction has gone out of business and now ALL unit owners are being assessed $5,000.00 to create a legal fund so the association can hire an attorney and sue the developer for the work that hasn’t been completed. I understand that the work needs to be completed but why am I paying for Phase II’s legal expenses when I live in Phase I which is completely built and in great shape?

Mister Condo replies:

R.B., I am so sorry this has happened to you and your community. Construction defect lawsuits are not uncommon in new condominium communities. It is not uncommon for existing unit owners to help shoulder the initial financial burden. It may also be possible to obtain special financing arrangements through a lender to pay for the lawsuit. I hope your Board investigated all its options before deciding on a special assessment. I know of one list of specialized lenders that can be found at the CAI-CT website at http://www.caict.org/?page=Directory#Banking/Financial Services. You can direct your Board to this list if necessary.

Fortunately, there can be tremendous upside to you and your community down the road if the suit settles in favor of your association. Depending on how the settlement is structured you may even be entitled to a refund of your assessment. It is important to pay close attention to what is going on when a construction defect lawsuit hits your community. Your Board should keep all unit owners informed of the suit’s progress through the condo newsletter or regular mailings. It can take a while to settle a construction defect lawsuit so hang in there, R.B..

Not impressed with the Board…

J.K. from Windham County writes:

Dear Mister Condo,

I am a new condo owner. I graduated from college two years ago and could finally afford to stop renting by buying an inexpensive condo. I went to my first homeowner’s meeting last week and I wasn’t real impressed with the folks running this place. The property manager ran the meeting and the folks at the front table just seemed content to go along with whatever he said. There were a few people in the back of the room who complained about the condition of the decks but nothing was voted on to fix the decks. It seemed like a waste of my time and I won’t likely go to another meeting. How do these people get to be on the Board?

Mister Condo replies:

J.K., sounds like you had a fairly lackluster experience for your first homeowner’s meeting. That is too bad. I hope you’ll give it another try. Here’s why:

The only requirement for serving on the Board of Directors at a condominium in our state is that you volunteer to serve and are either appointed to the Board by existing members or are voted into office by a majority of the other unit owners. It is a volunteer commitment. Board members are not paid to serve. They are residents of the association, just like you. It is not proper for a Property Manager to run a homeowner’s meeting, although it is not uncommon for them to report on the association’s finances and maintenance projects. Some Boards will ask their Property Manager to help guide their meetings because many property managers have been attending these meetings for years whereas Board members could be new or inexperienced. Either way, the Board is responsible to conduct the meeting and the President of the Board is the usual meeting leader.

There are many reasons why you should continue to go to your association meetings. Some topics discussed will determine your enjoyment of your property. Other topics may affect your common fees or involve special assessments. You certainly want to have your say in those matters. Also, you may find that you have something to offer the Board that will influence their decisions. They were voted to serve on the Board by the unit owners like you. They can’t serve your needs if you don’t let them know what you want. Finally, maybe you’ll want to volunteer to serve on the Board. That really is the best way to appreciate how challenging a volunteer job it is to serve your community as a leader. Good luck!

A Taxing Situation

J.R. from Hartford County writes:

Dear Mister Condo,

I serve as Treasurer at my condo and I have a tax question. Why do we, as a condo, have to file income tax returns if we are an exempt homeowner’s association? It seems like a lot of extra work for no good reason.

Mister Condo replies:

J.R., I am no fan of extra paperwork but I am guessing there is a logical explanation. I decided to ask Sam Tomasetti, CPA of Tomasetti, Kulas & Company, P.C. to give us a proper answer. Here’s what Sam had to say:

A residential condominium association has basically two choices when it files its annual Federal income tax return. It can either file as a homeowner’s association under IRC Section 528, or it can generally file as a corporation under IRC Section 277.  In no way is it exempt from the Federal tax system.

When a residential condominium association elects to file under IRC Section 528 it must break down income and expense between exempt function activities and those that are entered into for the production of income such as laundry income and interest income earning activities (referred to as nonexempt function activities).  Once this analysis is performed, the net nonexempt function activities are taxed at the flat rate of 30% after a statutory allowance of $100 is deducted.

On the other hand, when a residential association files an annual tax return according to IRC Section 277, it must analyze the components of income and expense into membership and non-membership activities.  The net non-membership income is taxed at regular corporate income tax rates.

In summary, although there are some aspects of residential condominium association that are generally exempt from income taxes, a tax return is still required to be filed, and there may be some taxes owed on either nonexempt function activities or non-membership activities.

Neighbor vs. Neighbor Nightmare

B.H. from New Haven County writes:

Dear Mister Condo,

I have a real problem with a noisy neighbor at my condo. He is a young man who likes to play loud music and video games until all hours of the morning. I have complained to my property manager and I’ve spoken to him about keeping it quiet after 10:00 p.m. So far, I have had no success. Our condo by-laws state that all residents are entitled to “peaceable enjoyment” of their units but the Property Manager said all that can be done is to warn the neighbor and ask the Board to levy fines if the behavior continues. I don’t want to cause trouble for my neighbor but I really need quiet so I can sleep at night. Can you help?

Mister Condo replies:

Noisy neighbors are a real nuisance in condos, B.H.. I am sorry you are not able to enjoy your condo peaceably as your by-laws state you should. It sounds like you will need to continue to apply pressure through the Property Manager and the Board to get your neighbor to comply with the rules. Also, your town may have local noise ordinances that can be enforced by the police if applicable. If your neighbor is approachable, continue to talk to him. Ask him if he would consider wearing headphones for music or gaming. If he is unreasonable or unruly, avoid him and work with the Board. It may take some time but you should prevail. Good luck!

Water, Water, Everywhere! Oh, No!

B.E. from Tolland County writes:

While I am thankful for the mild winter, my condo recently took a lot of damage from water. Apparently, ice dams had formed in the gutter while I was away on vacation and as it melted, water seeped in to the ceiling of my bedroom, causing the ceiling to collapse over my bed and dresser. My bed was ruined, a great deal of clothing has been stained; even the floor of the bedroom looks like it will need to be replaced. I called the Property Manager to put in an insurance claim only to find out that water damage inside my unit is not covered by the condo’s Master Policy! Is that true?

Mister Condo replies:

That’s bad news, B.E.. Sorry for your loss. To answer your condo Master Policy question… In a word, “Yes”. Master Policy coverage is primarily used to protect the common elements of the condo. That includes building exteriors but does not usually include building interiors. That’s where homeowner’s insurance comes in. In our state, the most common type of insurance held by condo dwellers is called HO-6. I hope you had such a policy. If not, you’re sure to want one as that is the policy that would usually cover losses to the interior of a condominium. You should speak with your insurance agent to discuss your coverage and how to make the claim. And be sure to write a letter to your Board to ask them to address the ice damming problem in your gutter. You shouldn’t have to come home from vacation to find a mess like that.

Flood Insurance Costs Causing a Perfect Storm!

T.T. from New London County writes:

Dear Mister Condo,

My wife and I live in a lovely condo close to Long Island Sound. We don’t have water views but we do enjoy going to the nearby beach. This past year, our common fees were increased $75 per month to pay for a new type of flood insurance our association says it must purchase. We don’t want to pay an extra $75 per month for extra flood insurance. Is there anything we can do to avoid paying this extra charge?

Mister Condo replies:

T.T., No one likes paying more for insurance. It sounds like your condo is suffering a similar fate to many shoreline condominiums in our state. FEMA was tasked with reclassifying flood zones after Hurricane Katrina did so much damage in the South a few years back. Many shoreline condos are now in Special Flood Hazard Areas (SFHA) which means they have to secure additional or increased flood insurance. Of course, that means increased premiums and higher common fees for those communities affected. Unfortunately, there is no way to avoid paying your share of the condo flood insurance. On the bright side, should you even need to put in a claim for flood insurance damage, you can have peace of mind that your condo will be covered. Enjoy the beach!