Category Archives: Assessments

Condo’s Underfunded Reserve Creates Many Problems

C.R. from outside of Connecticut writes:

Dear Mister Condo,

I live in a condo building with 58 units. There are zero adornments except for a very nice meeting room. We have two elevators which travel eleven floors up and down. I am currently serving on the board. Our Reserve fund is at 18K which in my eyes is very low. We will need a major elevator repair in a few years and increasing insurance as well as a rooftop service plan. We have decided to increase HOA dues 15% = $3000. more each month or 20% increase equaling an extra $4000. per month. We want to propose this to our residents and are working on a plan. Currently, there are a few things that need addressing (i.e. a new awning, a better gardener and washing the windows). We do not feel we can do these things with such a low Reserve. We have had many leak and flooding issues some handled by insurance some not. Can you offer any advice?

Mister Condo replies:

C.R., I feel your pain. When it comes to long-range planning and proper funding a Reserve Plan and a commitment to fund the suggested amounts of Reserves is a commitment taken on by the community (through the Board) are always the best solution to problems like yours. However, as many as 7 out of 10 associations decided to underfund or completely fail to fund their Reserve Fund, leaving them in the same precarious situation you now find yourself in. You have answered your question by suggesting that it is time to increase common fees and fund the Reserve. It may also be time to consider a community association loan to make the more urgent repairs. Neither of these options are going to be popular with the unit owners as both will cost them an increase to their monthly fees. Many Board members who wish to continue serving on the Board will be afraid of upsetting their constituents by suggesting an increase to the common fees but that is what needs to be done. How you handle it will determine your success. I suggest an open dialogue with all unit owners. Explain the problem and the proposed solution. It may be a bitter pill for them to swallow but it is the only way to keep their investment properly protected and financially secure. Good luck!

Repair Costs to Condo Limited Common Elements

R.B. from outside of Connecticut writes:

Dear Mister Condo,

When an HOA is paying for repairs of limited common elements that vary by unit (eg decks) and it must be paid by special assessment, can this be imposed based on actual cost of work per unit or must it be equal in % to the common elements. In our case it’s set up as 1/12th – equal for all units even though we are smaller and have less decks.

Mister Condo replies:

R.B., without being able to review your governance documents, I really can’t offer you a specific answer here. Typically, common elements are handled by the association in accordance with how the governing documents dictate. If the item in question is not mentioned, in your case “decks”, then the repairs are handled the way all other repairs are handled, in common. If the documents call for the decks to be maintained by the unit owners, then it is their responsibility. Special Assessments have their own rules for how they are levied. Again, your documents specify the terms. Typically, an assessment is levied in proportion to the percentage of unit ownership formula but there are exceptions. My advice is for you to review your condo documents about common and limited common element repair and maintenance. I think you will find your answer there. All the best!

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!

Condo Board Seeks Solution to No Money for the New Roof

P.B. from Hartford County writes:

Dear Mister Condo,

My Board wants to get a new roof. They set up a meeting for owners to vote on whether to take a 250K loan or not. At the meeting an attorney hired by the board to do the closing showed up and was practically running the meeting and trying to convince owners to give approval for the loan. I objected on the grounds that it was a conflict of interest to have the attorney there running the meeting since no vote was taken and not enough owners showed up for the meeting. Now the attorney instructed the board to go door to door to get proxies filled out. Is that ok?

Mister Condo replies:

P.B., not only is that OK, it may be the only way to get the necessary votes for the loan so the new roof can be purchased. HOA loans or Special Assessments are rarely needed by community associations that plan for the future and build a proper level of Reserves to handle something as common as a roof replacement. But, as is too often the case, the desire to keep common fees low wins the battle for fiscal responsibility. The end result is no money in the Reserves when needed. In this case, the Board has decided to seek out an HOA loan. The reason the attorney is needed is that it is very common that the association’s governing documents do not allow for the Board to take out a loan on behalf of the association. The proxy votes are the Board’s attempt to get the authority to negotiate the loan and obligate the association to the repayment of the loan, which is required from the bank before the loan is granted. As you can see, it often plays out as a comedy of errors before the final vote is taken and the money is loaned. The real question is how will you support the association moving forward? Will you be the one to suggest that common fees are raised 15%, 20%, 25% higher than they are right now? Will you be the one to insist that the association build a proper Reserve Fund and that Reserve Study be conducted so that a proper level of funding can be achieved? Without support for the unit owners, the Board’s hands are tied. If you need a new roof, the money will need to come from somewhere and that somewhere is the unit owners. Whether it comes in the form of a loan, a Special Assessment, an increase in common fees or a combination of any of the three, the unit owners will pay. Good luck!

Condo Management Company Charging Statement fee to Unit Owners

M.N. from New Haven County writes:

Dear Mister Condo,

My condo association recently hired a new management company. For the first time in history I was late on a monthly HOA fee and was charged a late fee of $15 and a statement fee of $5. The management company nicely waived the late fee since my check crossed in the mail but refused to waive the statement fee. I told them I want to opt-out of paper statements and they told me they only mail statements. Is it lawful to charge me $5.00 per statement?

Mister Condo replies:

M.N, yes, it is lawful for them to charge you a statement fee. The Board hired the new management company and should have been made aware of the fees and practices of the firm. The late fee was waived but that would have gone to the association’s coiffeurs. The statement fee goes directly to the management company and is a cost of doing business with them that your Board agreed to. If you are unhappy, you need to complain to the Board and ask them to either renegotiate with the management company to have the statement fee removed (unlikely) or find a management company that doesn’t charge a statement fee when their contract comes up for renewal. Or you could just pay the $5.00 statement fee and realize that it is part of how this management company collects its revenues from your association. All the best!

Special Assessment Surplus Not Returned to Unit Owners

J.P. from Boston writes:

Dear Mister Condo,

I am a unit owner and keep the books for a 12-unit, self-managed association in Boston, MA. At issue is disposition of a special assessment surplus. A vote was taken to “replace the roof”. Trustees then obtained bids, selected a contractor (no vote) and the special assessment amount was based on the possibility there would be a cost overrun of $10k (no vote). The trustees “said” any surplus would be refunded pro-rata. Now there IS a surplus and the trustees say they have changed their minds and are exercising their rights, as trustees, to use the surplus for other projects or save in reserve for future years. I and another unit owner are selling and want our pro-rata surplus share refunded. The master deed and bylaws are silent on a surplus situation, only on the right of trustees to impose special assessments for shortfalls. Help, the clock is ticking and this is worth $1,000 each my neighbor and I. Plus what feels like a violation of trustee rights.

Mister Condo replies:

J.P., I am sorry to have not been able to get to your question a bit sooner. I answer all questions on a “first come, first served” basis and I imagine you have already moved on from this unfortunate bit of business. Each state has their own laws about Special Assessments. I am neither an attorney nor an expert is Massachusetts Condo law so I can only offer you my friendly opinion. Special Assessments are a scourge upon condo and HOA living. They typically signify a lack of forethought about common element repair or replacement that should have been budgeted for years ago. Typically, they must be used for the specific intent of what they were levied for. In your case, the Assessment was used as planned but the surplus was not returned to unit owners, which is almost always the case. While the trustees had the best interest of the association in mind when they decided that the surplus should just be rolled over in to the association’s Reserve Fund, I am guessing they overstepped their rights and trampled upon yours in doing so. The question is what can you do about it? Since we are only talking about a thousand dollars, it may not be worth the time and investment of hiring an attorney to sue the association. You can certainly talk to an attorney who is verse in Massachusetts Condo law, but I am guessing they will tell you same thing that I am and that is you would likely have to spend more than a thousand dollars to try and recoup your thousand dollars. Whether to take on that battle is your choice but I think it might be a fool’s errand. Live and learn, my friend. You may have the moral high ground but they have your money. Let’s hope this doesn’t happen to you again. Good luck!

Can the HOA File for Bankruptcy?

X.Y. from New Jersey writes:

Dear Mister Condo,

Can an HOA file for bankruptcy in NJ? If the HOA has debts that the HOA cannot pay and keep the property properly maintained and operating? Because of a loophole in the law, a homeowner sued the HOA and lost, but the expenses were sufficient to defend.

Mister Condo replies:

X.Y., it is very unusual for an established HOA to file for bankruptcy, especially without first having the courts appoint a receiver for the association. The receiver would likely levy special assessments against the unit owners to make good on the debts of the association. Since I am neither an attorney nor an expert in New Jersey law regarding common interest communities, I can’t offer an opinion as to the legality of the bankruptcy filing. My guess is that there is no difference between an HOA or any other business filing bankruptcy. However, as I stated at my opening, it would be truly unusual. If the HOA fails to maintain the property it could be sued by a disgruntled unit owner or owners or, in some truly decrepit state of repair, could face condemnation from local authorities. Even that wouldn’t cause a bankruptcy but could force owners out of their units, which might lead to eventual bankruptcy. I am sure there are underlying issues that have set the association on this path. I highly recommend you seek legal advice from qualified local legal counsel before thinking of such a drastic measure. My guess is you will be advised against it and seek another method of satisfying the debts of the association. Good luck!

Common Fee Determination Seems Unfair

B.P. from Litchfield County writes:

Dear Mister Condo,

I live in a 55 and over condo community and they charge by square footage. The townhouses pay more than the ranches which I don’t think is fair because all of us receive equal services such as plowing, mowing trash pickup, clubhouse use etc. I don’t believe assessing by size of the units is proper. Any comments on this and what we can do to change it?

Mister Condo replies:

B.P., there is very little you can do to change the schedule of common fee assessments and for good reason. The schedule of fees was part and parcel of every unit that was sold in your association. It is a legally binding agreement that both buyer and seller agreed to at the time of purchase. Further, it is an intrinsic part of the condo documents that binds the unit owner to the association. I answered a similar question from a condo owner in Illinois not too long ago. You can find my full answer here: http://askmistercondo.com/validity-of-condo-percentage-of-unit-ownership-questioned/. All the best!

Condo Association Increases Late Fees and Adds Interest Penalties

C.C. from New Haven County writes:

Dear Mister Condo,

My Condo Association just sent notification that they are planning to increase late fees on HOA fees to $30 (25 to the association and 5 to the management company). They also plan to assess18% interest rate.

Can I apply both a late fee and an interest rate? Is that legal?

Mister Condo replies:

C.C., as long as the Board followed the rules for changing the assessment schedule and the interest on late fees, I don’t see why they can’t have both late fees and interest on late fees. The bottom line is that timely payment of common fees and assessments is critical to the association’s ability to pay its bills on behalf of all owners. Late fees and interest penalties are really the only tool available to the Board to encourage all unit owners to make their payments on time. Best of all, late fees and interest penalties are easy to avoid. Just make sure every unit owner pays their fees and assessments on time, which is exactly what they agreed to do when they purchased into the association. All the best!

Condo Board Closes Pools Versus Maintaining Them

T.K. from outside of Connecticut writes:

Dear Mister Condo,

We have 2 outdoor pools. For the past 2 years, 1 pool has been closed – no reason given. This year, none of the pools are opened. I was planning on attending the yearly board meeting that was to begin at 7 pm last evening. However, upon showing up for it we were told it wouldn’t be starting until 8 pm as they were “running late”. I have my own theory as to why they were delaying. What recourse do we have with regards to our pools not being opened and not being informed as to the situation? Our maintenance fees go up every single year without hesitation. Aren’t they liable to honor the dec’s & bylaws with regards to maintaining & operating the pools? So FED UP!

Mister Condo replies:

T.K., being fed up is a good start. Now, it is time to take action. I am sorry that you and your fellow unit owners are being denied full use of your amenities. Pools are a major amenity for many associations and you are correct that their care and maintenance is the responsibility of the Board. However, many associations fail to collect enough money in common fees to properly handle all of the fiscal responsibilities of the association. Even though as a unit owner, all you see is common fees that go up every year, that is no indication that enough money is being collected. Ultimately, associations need to have really good budgets and really good Reserve Studies adhered to in order to thrive. Would you be surprised if I told you that your common fees may need to rise 20 – 30% for that to happen? Would you support a Board that raised the common fees in order to meet the financial obligations of the association? The problem is that the Board is comprised of democratically elected unit owners who must run for election and reelection to serve their community. If they raise fees, they may not be returned to office as that is always an unpopular course of action. However, I can assure you, if the association ties their hands by not raising enough revenue to operate properly, you can expect your pools to remain closed. That is likely the tip of the iceberg. Are roofs being properly maintained? How about parking lots? How about walkways? Underfunded associations are easy to spot. The problems don’t all appear at once but they do surface. I would encourage you to have a candid conversation with your Board and fellow unit owners. If there is no money to make the repairs, you might want to be the one who suggest that common fees be raised. Without that extra capital to work with, I doubt much will change. Good luck!