Monthly Archives: April 2018

FHA Not Satisfied with Condo Reserve Fund

T.S. from outside of Connecticut writes:

Dear Mister Condo,

I am having trouble getting this Condo approved for mortgage financing. I was told that if the current budget does not have a line item for the Reserve Fund, that would make the HOA ineligible. Can you give an example of a budget that shows a Reserve Account? Why is a savings account on a balance sheet not sufficient? The HOA is saying this is the Reserve Account. Please help.

Mister Condo replies:

T.S., when reviewing the condo’s eligibility to qualify for mortgages that are backed by the FHA, the lenders look to see that there is a Reserve Fund and that the association is making at least the minimum amount of annual contribution (Currently 10% of the budget). Local mortgage lenders typically require this stipulation because they want their mortgages insured or underwritten by the FHA. Typically, condominiums maintain FHA approval status as it makes it easier for units to be bought and financed by owners seeking FHA-backed finance options. However, there is no legal requirement that forces the condominium to comply or even maintain FHA approval status, leaving mortgage seekers like you in the lurch. There are mortgage companies that specialize in dealing with FHA approvals and this association might be well served by working with one to achieve FHA approval, making it possible for mortgage seekers such as yourself with better access and option when it comes time to take a mortgage on one of the condo units within their association. It isn’t as simple as having the association claim an association-owned saving account is the Reserve Fund. Good luck!

Bank Still Owns Condo Parking Spaces

Z.A. from Illinois writes:

Dear Mister Condo,

I live in Cook County Illinois. I am currently the President of our Board. The parking spaces in our building are deeded, and 24/26 spaces are currently owned by Unit Owners. However, the Developer was unable to sell all of the garage spaces, even though he already sold all the Units. The bank just foreclosed on the remaining two garage spaces and has stated that they will try to sell the garage spaces to someone outside our building. We would like to create a rule that requires the sale, exchange, or leasing of any garage space must be to a Unit Owner, and not to anyone outside our building. Would you recommend we do this with a simple Rule/Regulation, or do we need to amend our Declaration for this? Thanks in advance.

Mister Condo replies:

Z.A., I am not sure you can do this at all! Since I am neither an attorney nor an expert in Illinois condo law, I need to refer you to someone who can help. There are various stages of a condo. Developer Transition sounds like the one you are in right now. If the bank owns the land, you may not have the jurisdiction to make a rule over their land. You may need to purchase the land from the bank before making any rules about how the spaces will be used. Frankly, I am surprised one or more of the 24 existing unit owners hasn’t pounced on the available spaces seeing as parking is at such a premium in your region. I would recommend that the association consider purchasing the spaces from the bank and speak with your association attorney about what to do with them. My guess is they will provide income for the association over time. Good luck!

Condo Square Footage Marketed Using Common Area Figures

C.C. from outside of Connecticut writes:

Dear Mister Condo,

Is common area factored into the total square footage of the sale price of a condo?

Mister Condo replies:

C.C., typically, common area would not be factored into the individual square footage of the condo. However, sales prices are simply marketing tools and have no meaningful value as to what is or isn’t part of the condo. Realtors and unit owners selling their condos want them to look as impressive as possible. The deed, on the other hand, details exactly what the square footage of the unit is. If the deed says 900 square feet and the real estate ad says something different like A large deck adds to the lovely interior giving the unit 1200 square feet of living area, the buyer needs to beware before making the purchase. This discrepancy would be uncovered during the closing process when an attorney would likely be reviewing the deed with the buyer. Thanks for the question!

Condo Board Keeping Election Results Private

V.M. from outside of Connecticut writes:

Dear Mister Condo,

Voting for three trustee positions with four individuals seeking a position was done primarily via proxy ballot. At the annual meeting, a quorum was not achieved. Some unit owners believe we have an obligation to post the results of the ballot count even though there was no quorum. What is your opinion?

Mister Condo replies:

V.M., results of any vote, proxy or other, are association records. As such, all unit owners have a right to see the results. However, allowing access to records and posting the results are two different things. I would say that any unit owner who wishes to see the results should request the record inspection. The association may or may not charge a small fee for the record inspection as detailed on your state law. My advice would be to always keep communication channels open between unit owners and the Board so as not to give the appearance of impropriety. An informed constituency is generally happier than one that is kept in the dark.

The lack of quorum at your Annual Meeting has no effect on this but it does bear the question of why proxy voting is required and why unit owners are not attending the Annual Meeting. This is common in seasonal properties (i.e. beach communities where owners may not be present year-round) but uncommon in associations where unit owners are typically at home. If the reason for no quorum is unit owner apathy, the unit owners have no one to blame but themselves. As long as the Board has nothing to hide, I would publish the results of the vote just to keep everyone happy and informed. All the best!

Condo Restricts Renters Use of Rooftop Amenity

V.S. from Boston writes:

Dear Mister Condo,

I own a condominium in Boston, MA. The Condominium Association amended the Condominium Trust document with a 67% vote of Unit Owners and recorded it at the Registry of Deeds. The amendment prohibits renters from having furniture on the roof deck. Owner occupants are allowed to have furniture on the common roof deck but renters are not allowed to have furniture on the roof deck. Renters are allowed to use the roof deck but cannot leave furniture up on the roof deck. Can the Condominium Association enforce such a provision or is this discriminatory against the renters? Thank you for your guidance.

Mister Condo replies:

V.S., the answer is “Yes” to both questions. Yes, the association can discriminate against renters regarding the use of the roof. Yes, they can enforce the rule seeing as it was passed properly. The real question is can you now sue the association for discrimination seeing as they have created a “class” of residents called “renters”. I am not an attorney nor am I an expert in Massachusetts state law but your question really needs to be posed to a local attorney to see if it has merit. You are not being denied access to the amenity; you are simply being denied access to have furniture placed on the roof. I wouldn’t think such a case has merit but if you think it is worth pursuing, I encourage you to do so. All the best!

Condo Landlord May Not Be Who He Claims

J.M. from outside of Connecticut writes:

Dear Mister Condo,

How do I get information about a condo owner? I am renting from someone I have not rented from before and I want to know that he is the true owner.

Mister Condo replies:

J.M., I appreciate your practice of due diligence. Nobody wants to get scammed by an impostor. The local land record office or equivalent is the keeper of such records. It is usually located in a City Hall or similar complex in the city or town where the property is located. Once you find out where the records are kept, it is usually as simple as visiting the office and looking up the record. Depending on where the property is located and the size of the records office, this could be a simple visit or it could take hours. There are also some online resources to assist but many charge a fee for the full information you are seeking. Still, if you have a genuine concern, that fee could be small potatoes compared to getting duped out of your first, last, and security deposit. Finding out the true owner is only half of the battle. Once you have that information, you’ll want to confirm the true identity of the person offering the lease. Just because I claim to be “Joe Smith” doesn’t mean I am “Joe Smith”. Also, you may find the property is owned by a business entity instead of a person. Again, you will need proof that the lease is offered by the business entity and not “Joe Smith”. My best advice to offer you is that if your gut is telling you that something is fishy, do your homework before signing the lease and paying your money. There may be other rentals available that you will feel better about signing a lease. Good luck!

Police Officer Resident Requests Special Condo Parking Arrangement

L.L. from outside of Connecticut writes:

Dear Mister Condo,

We live in a complex and my husband has a take home police vehicle. Is it proper to ask the Association for a police vehicle only parking sign for his vehicle that way he has access to it and it is visible to him outside of the condo? There is no assigned parking.

Mister Condo replies:

L.L., you can certainly ask but I see no reason for the Board to grant such a request. While I am sure the association appreciates the presence of a police vehicle on property to deter thieves, the reality is that this is just another association member’s vehicle. It is not on the association grounds at the association’s request. If keeping the vehicle visible to him is a requirement for him domiciling the vehicle then I would suggest a condo with unassigned parking is not an ideal place to live. That being said, I would include the added safety the community receives from having a police officer as a resident and explain that it would be ideal for the vehicle to be parked within eyeshot of your unit. The problem faced by the Board is that once they grant your accommodation, they will very likely be swamped with similar requests from other unit owners. The beauty of unassigned parking is that it doesn’t have to be managed by the Board. Once it is assigned, unit owners now have reason to complain that a fellow unit owner has parked in “their” space. If it were me, I would respectfully deny the request. But that doesn’t mean you shouldn’t ask. I am just trying to explain why the Board may deny you. All the best!

How Does the Condo Know How Much to Keep in Reserves?

B.B. from outside of Connecticut writes:

Dear Mister Condo,

What is a good process to determine the amount to be kept in reserves and set assessments?

Mister Condo replies:

B.B., there is only one tried and tested process to determine the amount to be kept in Reserves and set assessments and that is the implementation and adherence to a Reserve Study. There are many companies that specialize in this service but associations that wish to save money and have the confidence they can do it right can even do it themselves. The concept is simple. The minute the first common element is added to the association, it begins to age and decay. Some go quickly, some take decades, they will all need to be replaced and have a known useful life. The Reserve Study looks at the cost of the common elements and uses a formula to determine the likely cost at the age of replacement. Obviously, it cannot be an exact number but I think you will find these studies, when performed properly, are surprisingly accurate. Once the study is performed, a funding plan is put in place. As long as the funding plan is adhered to, there should always be enough money in the Reserve fund to handle these known upcoming expenses as they come do. Additionally, the association benefits from accruing interest on these funds which tend to help offset inflation. I wish you and your association the wisdom of Solomon in determining and adhering to your Reserve Study findings. Good luck!

How Many Condo Proxy Votes Can One Person Make?

J.R. from outside of Connecticut writes:

Dear Mister Condo,

How many proxy votes can one person control and place?

Mister Condo replies:

J.R., voting by proxy is a common practice. The rules that govern how many proxy votes that a single person can control vary by governing documents (many are silent on the subject) and state laws. In my state of Connecticut, proxy votes are generally limited to not more than 15% of the total eligible votes for most matters. That means that if an association has 100 units, the proxy voter could cast votes for their own unit plus 14 others. Any additional proxy votes they held would not be counted. There is also the concept of limited proxy voting, meaning a unit owner has given another unit owner a proxy for a particular item. This is most common for things like voting in favor or against an Annual Budget or a Special Assessment. The single most important item to consider when proxy votes are used is that the person or persons counting the proxy votes understands both the association’s rules on proxy voting as well as the state laws on proxy voting. I have seen and heard first-hand accounts of associations that get this wrong and later have a unit owner contest the results of a vote. Depending on what is being voted on, this could be quite costly to the association. Imagine passing a Special Assessment and the proxy votes were tabulated incorrectly. The association hires a contractor only to have the vote challenged and thrown away. Now the association is on the hook to the contactor and won’t have the money to pay. Yikes! If you or your association is unsure about the exact process for how proxy votes should be used at your association, I recommend you speak with a locally qualified community association attorney who can give you an opinion on what your governance documents and state law say about the matter. That way, you will be in full compliance with both. Good luck!

No Formal Condo Association Leads to Informal Roof Problem

M.L. from outside of Connecticut writes:

Dear Mister Condo,

I own a condo in a converted 1860-era house. I have the first floor and upstairs neighbor has 2nd and 3rd. We don’t have a formal association. We just split shared expenses 60/40 (I’m 40). It has worked fine but now there is an issue. We desperately need a new roof. But they keep stalling and finally have come clean that they don’t have the money. What recourse do I have?

Mister Condo replies:

M.L., if you have a condo agreement as part of your purchase agreement, you have a formal association. You and your fellow owner just haven’t been following it, which is fairly common in your two-unit condo. You are about to learn first-hand what happens when one of the unit owners doesn’t have the money for the needed repair and it isn’t pretty. The short-term answer is that unless these folks agree to pony up the money for the new roof, you’re not going to get a new roof. The long-term solution is that you will likely need to sue in order to get them to pay. Since they aren’t likely to do that, they may need to look into other options like mortgaging (unlikely) or selling (ideal). This could take years and you still won’t have a new roof until a new buyer is found who is willing to not only buy their portion of the condo but also pony up 60% of the expense of a new roof. One other option you may have is for you to pay for the new roof and hit them up with a lien for their portion of the roof. You will need an attorney to draw up the papers, which will have to be in compliance with your condo’s governing documents as well. As you can see, this is a most unfortunate event for all involved. There is one other option I didn’t mention and that is for you to sell and make this someone else’s problem. I don’t know if that is an option for you but I wouldn’t hesitate for a minute to get out of this potential money pit if given the opportunity. All the best!