Category Archives: Assessments

Condo Reserve Study Reveals Major Shortage

B.P. from outside of Connecticut writes:

Dear Mister Condo,

Our new condo management company did a projection study. Unit owners received a letter stating that each unit will be assessed $50,000 payable over a 30-year period unless we vote to take over inside and outside of our units. Is this legal?

Mister Condo replies:

B.P., I’ve never heard of such a thing but that doesn’t make it illegal. The whole idea of a condominium association is that the association is responsible for all common elements, which includes the exterior of the buildings. Individual unit owners do not own the building exteriors so they are not directly responsible for the care and upkeep of them. I say “not directly” because unit owners do have to do two things to make sure their properties are well maintained. The first is to pay their common fees on time. Common fees are the lifeblood of the association and include a contribution to the Reserve Fund, which is where the money to maintain the common elements should eventually come from. Second, and equally important is that unit owners need to elect responsible folks to govern their association. The Board is directly responsible for overseeing the upkeep of the association. They typically do so by hiring outside contractors and management companies to implement this duty but they are the ones representing the association in all matters regarding maintenance and preservation of the association’s common elements. Your governance documents clearly spell out the duties of the association with regards to common elements. If I had to guess, I would say that the communication you received is not properly communicating the message of a Reserve Fund contribution. $50K contribution over 30 years is a little less than $140 per month. Without knowing the amount of assets your association needs to maintain, I would say that is not an unreasonable number for monthly Reserve Fund contributions. I would hope that your association is already collecting these Reserves as part of your monthly common fees. If not, this letter may have been meant to serve as a warning that there is going to be an increase to your common fees to cover the necessary Reserve Fund contribution needed to maintain the community. The “projection study” conducted by the management company may have actually been a “Reserve Study” and they are simply conveying the results of the study. Either way, your association needs to build a healthy Reserve Fund so future repairs can be afforded. Every single common element is aging as we speak. Money needs to be collected today for those replacement projects tomorrow. All the best!

Exterior Rot on Condo Leads to Interior Water Intrusion

R.S. from Missouri writes:

Dear Mister Condo,

I am a condo unit owner for 13 years. I recently experienced my third interior damage leak from rotted siding and decades old flashing. Would the HOA be responsible for the cost of these repairs? My monthly common includes maintenance of the exterior of the unit. Thank you!

Mister Condo replies:

R.S., I am sorry that you have had three different water intrusion events that have caused damage to your unit’s interior. I hope you have homeowner’s insurance to help you mitigate against the losses. It would appear that your condo isn’t being maintained as well as it might if you are experiencing rotted siding. Properly installed flashing may last decades but not if water is getting in behind the flashing. The Board of Directors is charged with maintaining, protecting, and even improving the common elements of the association as outlined in your condo documents. They are also responsible for putting in place a strong fiscal plan that includes building up association Reserves for the eventual replacement of common elements. Have they done that? Is there money in the Reserve Fund to pay for the needed repairs? If not, this problem is only going to get worse as further deferred repairs will lead to more decay and more water intrusion events as you have described. It may be time to have a heart to heart with the Board and fellow unit owners. It may be time for a community association loan to make these repairs and it is most certainly time to raise common fees so that a Reserve Fund can be built for future repairs. This may mean that common fees will rise significantly but if there is no Reserve Fund, they have been artificially low for too long. The HOA is responsible to repairs made to the exterior of the unit. You are responsible for repairs made to the interior, even if they are caused by neglectful maintenance by the association. That is why you have to have insurance for these losses. It’s time to get your condominium association back on track financially or these claims are going to become larger and much more frequent. Let’s hope it doesn’t come to that. Good luck!

When Does Delinquency in Condo Common Fees Cause Collections?

A.V. from Hartford County writes:

Dear Mister Condo,

How many months of condo fees do I need to be behind before being sent to attorneys for collection?

Mister Condo replies:

A.V., I am sorry you have to ask such a question. I hope your financial situation improves and you get caught up on your common fees. Associations have the ability to send any overdue account to a collections agent as soon as it becomes overdue. For practicality purposes, most association will allow a 30-day period (with fines or fees after 10 days for late payment). After 30 days, a letter of demand is usually sent. After 60 days, referral to an attorney or other collection agent is common. At that time, the collection agent will take or recommend more aggressive action which can actually lead to foreclosing on the unit for delinquency. This is an extremely aggressive action but it is necessary to keep the association solvent. After all, common fees are the lifeblood of the association. If unit owners stop paying them, the association cannot provide the services these common fees are used to pay for. Unit owners who don’t pay their fees are getting a “free ride” at the association’s expense. They still get snow and trash removed, lawns kept, insurances paid for and much more. It isn’t fair to the association members who pay their fees on time to carry another unit owner. If you do find yourself turned over to a collection agent, my advice is to work out a payment plan if allowed and get yourself current as quickly as possible. Common fees alone can be expensive. Having them compounded with late fees and collection fees will quickly make a bad situation much worse. Good luck!

HOA Seeking Additional Assessment from Former Owner

P.J. from outside of Connecticut writes:

Dear Mister Condo,

Can an HOA increase assessment amount 8 months after I sold condo and deed changed hands? The management co. made an error in what they call the “estimate” of their closing figures which were baked into the sale amount (buyer paid the assessment and price was lowered accordingly). Now they say I (previous owner) have to pay more even though the sale cleared title and resale cert was all normal. The letter tells me I owe more than what they thought I owed when they gave the figures at closing time.

Mister Condo replies:

P.J., this is clearly a legal question for a qualified attorney in your state. Different states handle these transactions differently so I cannot give you a definitive answer for your scenario. I will offer this advice. Once the sale is made and the closing is over and the title has changed hands, the seller is typically relieved of any further claims against the unit. In other words, if the HOA makes a Special Assessment after your name is off the title, that assessment is on the new unit owner. There are exceptions though and you really need to speak with an attorney from your state who can give you a proper legal answer for your situation. The way you have described it sounds fishy to me but I am not an attorney and cannot offer you any legal opinion here. I know I would be reviewing the details with a qualified attorney to make sure I was being dealt with fairly and within the scopes of local law. All the best!

Mishandled Condo Elevator Maintenance Contracts Causes Special Assessment

M.C. from Florida writes:

Dear Mister Condo,

I live in Florida, so I will take your advice in good faith, but: we are being charged a special assessment of almost $2000 to repair the elevators of the condo complex. Normally I would have no complaint, but the reason the Special Assessment has become necessary is because of poor management of the repair contracts of the original repair work that was in budget.

Basically, the elevators were to be fixed and brought up to Florida building code nearly a year ago. However, the Board did not sign any labor contract and paid for the work up front. At some point, the work was abandoned and the elevators have stayed in disrepair and out of inspection compliance (which they were fined for) until a few weeks ago. The Special Assessment of almost $2000 per unit owner has arisen as a result of not signing those original labor contracts and the abandoned work being paid for with maintenance budget funds.

Bottom line, I want the elevators fixed, so I will pay the assessment. But, do we have any legal recourse against the board to recover those funds as a “breach of fiduciary responsibility”?

Mister Condo replies:

M.C., in my non-legal opinion, you do not have recourse against the Board. From what you have described there was no premeditated malfeasance or crime, just some poor business decisions that caused an increase in the overall expense of the association-owned asset. It may have managed less than ideally but I don’t see any breach of duty here. Hopefully, there has been a lesson learned and there will be better stewardship of the elevator maintenance program moving forward. Of course, Board Members are democratically elected volunteers from within your association and they do need to run for reelection at some point. If you feel there are better candidates for the position, you and your fellow unit owners will have opportunity to replace them with different volunteers at some point. All the best!

Condo Reserve Fund and Operational Fund Should Not Be Same Account

E.B. from Litchfield County writes:

Dear Mister Condo,

Can you refer me to a good article I can share with the board relating to using Reserve Funds and Operational Funds? I have some board members thinking it is one big pot of money! I would like to show them an explanation.

Mister Condo replies:

Sure thing, E.B.! The difference between Reserve Funds and Operational Funds is significant and the two should never be mingled or thought of as one big pot of money! My friend, Jeff Hardy, Founder of TOPS Software, wrote an excellent article on the topic that you can find here: http://camblog.topssoft.com/back-to-basics-understanding-reserve-fund-accounting. I am not sure what type of training your Board has had but one of the first things Board members need to learn when they agree to serve is all of the fiscal fiduciary duties they have as Board Members. Funding and protecting the Reserve Fund is paramount to maintaining a fiscally healthy association. There is always great temptation to simply spend or borrow from this fund, but, as is almost always the case, the monies never get put back and the community becomes deficient when the next major capital improvement project comes due. That takes the community down the path to Special Assessments or loans to make the needed repairs, or worse, deferred maintenance (not making the repair at all). All of this is easily avoidable by a proper understanding and respect for the Reserve Fund. Good luck!

Condo Has to Purchase its Own Clubhouse!

L.P. from outside of Connecticut writes:

Dear Mister Condo,

When many of the first purchasers bought from the condo developer they were told that one condo unit on the first floor would be the owners’ clubhouse/fitness center. At some point (I’m unsure of when since I’m a new owner) the documents given to purchasers said that the clubhouse condo was owned by the developer and could, at some future time be sold. Now the building is nearly sold out and being turned over to the owners. The board is asking the current condo owners as to our interest in purchasing the “clubhouse” condo to ensure that the building continues to have this amenity. All of this is very early; we have an attorney who would negotiate the best price for us. However, I’m wondering what questions the owners should ask the board before they go further. Obviously, the price, how we would be assessed and for how long are questions but are there other considerations?

Mister Condo replies:

L.P., while it is unfortunate that the clubhouse/fitness center was not included as part and parcel of the development, I cannot say this is an uncommon practice. It sounds like the developer used a “bait” tactic of enticing early owners into thinking that there would be an amenity of a clubhouse/fitness center as part of their purchase but I am guessing no one has anything like that in writing. Again, this is not uncommon from stories I have been told from around the country. The unit owners will likely have to vote to add this common amenity to the association. Since it is almost certain that the unit owners will want this amenity, it is wise to work with the attorney to handle the negotiation. Aside from the purchase itself, you might want to ask about staffing requirements (if any) and insurance repercussions to the association from adding the amenity. There is also the issue of purchase and maintenance of fitness equipment, hours of operation, open to the public or just unit owners (or guests). Will it be rented out and to whom? The Reserve Study should be updated to reflect the new building and all costs should be considered. Like I said, it is likely to go through any way but I think it would be helpful for unit owners to know exactly what they are buying and what the real costs of owning it are going to be. Enjoy your new clubhouse!

Late Fees on Condo Special Assessment

R.S. from outside of Connecticut writes:

Dear Mister Condo,

Can late fees be charged on special assessments if the condo documents allow late fees on assessments but do not specifically state late fees are allowed on “special assessments”? Are “special assessment” just assessments when it comes to late fees?

Mister Condo replies:

R.S., unless your documents specifically address the difference between Special Assessments and assessments (common fees), my advice would be to treat the two the same. That means that Special Assessments that are not paid in timely fashion would be subject to the same late fees that would apply when any assessment is due. There are exceptions, of course, and I have seen 30-day and longer “grace” periods offered by associations that are trying to alleviate the burden of “immediateness” to the unit owner struggling to pay the Special Assessment. However, at the end of the day, late is late, and the association needs as many collection tools at its disposal as possible. Late fees are the least of a delinquent unit owners’ problem as collection actions and expenses are likely to ensue. Of course, the best policy is for the association to adequately fund their Reserve Fund so that Special Assessments are the true exception and not the planned method of collecting funds as major capital improvements surface. Special Assessments put both the unit owner and the Association at risk. It is better to have regular common fees set at a high enough level that Special Assessments are rarely, if ever, needed. Good luck!

No Common Fees Collected on Condo Unit for Six Years!

J.D. from New York writes:

Dear Mister Condo,

In New York, is there a statute of limitations applicable to a condominium where the entity claiming to be the holdover of the mortgage note has three times, without success, sought to hold a public sale? Now, more than six years have passed since the last payment was made (to a bank no longer in existence, having been absorbed into another bank, which – in turn – was merged by the federal government into the entity which has unsuccessfully thrice attempted a public sale). If such statute of limitations exists – would it be found in the CPLR, GOL, or some other statute, rule or regulation?

Mister Condo replies:

J.D., I can only hope this association has had some legal guidance from a qualified attorney during this lengthy period. I am not an attorney so I cannot offer any legal advice in this column. I am not sure how an entity can claim to be a mortgage note holder without providing some type of documentation. The Civil Practice Laws and Rules (CPLR) and General Obligation Law (GOL) may be a great place to start but I would also suggest that the association has a lien on the property enforced by the New York Condominium Act and that whoever owns the unit is liable for the back common fees as provided in the law. An attorney may have also advised that the association foreclose on the unit for unpaid fees due to the association. Clearly, this unit needs to be liquidated one way or another and the association needs to have a dues-paying unit owner using the unit as soon as possible. That may mean taking a write-off but it should get things back on track. Consult with a locally qualified attorney to see what your options are. All the best!

Unapproved Remodel to Upstairs Condo Damages Downstairs Unit

L.S. from outside of Connecticut writes:

Dear Mister Condo,

The question I have is this, I live in a condo that has 4 units per bldg. I own mine. These condos were built in the late 50’s maybe early 60’s. Unfortunately, there is an HOA fee of 150 dollars a month and the outside of the buildings look horrible. They really need to be painted and new front and rear doors placed. The front porch is falling apart. The condos were not built like the newer ones are. Someone purchased the upstairs condo and decided that they would remodel the whole condo. There was a wall removed and other major repairs without a permit that has caused damage to my condo. I spoke to a contractor who looked at the damage and informed me that if we were to try to fix it, it would cause more damage. The upstairs condo would receive damage also. I am just wondering who should pay for the damage. The owner knows that there were issues and he wanted his handy man who caused the damage and himself to look at it. I am not sure what good that would do. Should I file a claim with my insurance company and let them fight it out or is there another way to deal with this? Am I going to be stuck with a huge bill?

Mister Condo replies:

L.S., you certainly have a lot going on inside your 4-unit building. Let me address each item separately. First up, the HOA isn’t maintaining the property as they should. There is no reason for painting to go undone other than there is no money in the Reserve Fund for the project. You mention a fee of $150. If that fee isn’t enough to cover operating expenses and set aside money for routine maintenance like painting and door replacement, there will need to be a Special Assessment and/or an increase to common fees. Neither option is popular but that is the only way to get the association back on track so it can fulfill its duty to maintain the building exteriors.

The remodeling project is another issue entirely. It sounds like the upstairs unit owner did some unauthorized and unpermitted work on their unit causing damage to your unit. It’s time to speak with an attorney about suing the unit owner for the damage. You should file a claim with your insurance if you have suffered financial damage worth filing a claim over. However, the fault is clearly with the unit owner who did the unauthorized remodel. You governance documents likely spell out what types of repairs and improvements can be made to unit interiors. If they knocked down a supporting wall, you could be looking at a very expensive repair, not to mention the potential danger you are in. I would want to get this taken care of immediately. If they are amenable to correcting the problem at their expense, you may not need to sue but, in my experience, once the dollars start adding up, a lawsuit is almost inevitable. You should be able to recover your damages though and I am hopeful that your upstairs neighbor will do the right thing. Good luck!