Category Archives: Financial

Uncollected and Unaccounted Condo Common Fees!

T.N. from outside of Connecticut writes:

Dear Mister Condo,

I’ve lived in a 3-unit condo for almost 2 years. For the first year I tried to get in touch with its only Trustee—I wanted to become involved in the HOA and help plan an annual meeting—but he continually put me off (he lived elsewhere and rented his unit). A week or two before a new owner closed on his unit, this guy asked me to take up the mantle as Trustee (this was also the first I was finding about him selling!). He cancelled 2 meetings with me, and then on the day of his closing, texted me that he was in the city and could I take a long lunch to settle business. At this lunch meeting (which took 2hrs!), we got my status as Trustee notarized, my name on the bank accounts, and I got a giant bag full of paper records.

To say the least, I was completely unprepared for being the Trustee. After spending 8 weeks going through these incomplete and disorganized records, I came to find that for years the common bills and landscaping were paid late or not at all (apparently 2 companies quit over non-payment). I intervened with the electric company terminating our service and the city issuing a lien. After doing what I could with the records, I hired a forensic accountant to do some triage, and she was appalled at what she found. For years the association has increasingly been coming in hundreds of $$ under budget, and the reserves have been being drained and not replenished to compensate (basically as an association we have $600 to our name).

It’s also clear that he didn’t keep track of HOA dues—there is no ledger to speak of and some of the “deposit notes” are written on napkins and sundry receipts—and, from what I can tell, over the past 7 years we’re missing nearly $4K in HOA dues mostly from the unit owned by an elderly couple.

The accountant and I had a long discussion and we decided that since we have no records proving who owes what and since it’s been years, we should forgive the HOA dues, but put them on a payment plan for the 10K they owe in back assessments. The elderly couple had been claiming we were not a legit association and thus not under the same governing rules as one, so I dug up the declaration of trust and the master deed I got during my purchase for them to see (5 months in and we finally all agreed on a payment plan).

When I closed I had my lawyer look over the docs and synopsize them for me, but I didn’t really read too much about the duties of a Trustee at the time. Now I’m seeing that according to the by-laws we *have* to have 3 Trustees, each one a rep for each unit. I want to eat my own face. The new guy is busy with a PhD and has no interest in taking on this responsibility, and the elderly couple has no idea how an association is run or how HOA fees or assessments work (they called me each time they received a monthly HOA fee invoice, asking me what this bill was; they also don’t know why I can’t “get a guy” to repaint their unit, for example).

Right now, I feel like the only interested, sane, informed person trying to make sure the association doesn’t collapse (I’ve contacted several property managers who have haughtily told me they don’t manage associations this small). How terrible would it be if I remained as the only Trustee for another year, just until I get us out of this financial mess and put processes in place to ensure it doesn’t happen again?

Mister Condo replies:

T.N., I would love to tell you that yours is the first horror story I have heard from very small (2 or 3 unit) associations but, unfortunately, the situation you describe is far too common, although not always as financially shocking to read about. The phrase “Buyer Beware” comes to mind when I read your list of wrongdoings by the previous Trustee and unit owners. I admire your realistic approach at fixing the problem but, honestly, you are the only person who can correct what is going on and, perhaps, right this sinking ship. Or you can abandon the ship by selling your unit to an unaware individual. There seems to be an endless demand for these units in smaller associations although, personally, I would never own one unless the other unit owners were family. As you have seen, most property managers are loath to manage these small associations. How can they make any money doing so? Even a modestly sized association would yield several thousand dollars per year for the efforts. Your association would have numerous management issues and they would be lucky to make a few hundred dollars a year for their time. Not going to happen. As far as you remaining the only trustee, technically, you are operating outside of the scope of the governing documents. However, who is going to challenge you? The PhD candidate with no time or the elderly couple with no understanding of what they own? I think you are free to do as you see fit. If it were me, I’d sell and consider this a lesson in something to never do again. Good luck!

Can the HOA Restrict the Number of Rental Units?

S.P. from New Haven County writes:

Dear Mister Condo,

Can the HOA restrict the number of rental units in a complex?

Mister Condo replies:

S.P., yes! Although they cannot do so randomly or without following the rules for making rules that would limit the number of rentals. Rental caps are quite common in condominium association or lots of reasons. What do your governing document say? Often, there is a limitation right there. If not, what is the limit? Many associations find they cannot get FHA financing for their unit owners if more than a certain percentage of units are rented, hence, the rental cap. What they can’t do is change the rental cap while you are currently renting your unit, forcing you to evict your tenant. However, they could prevent you from renting the unit again until the percentage requirements are met. In that case, they start a rental list that allows you to rent when the availability for rentals will not exceed the rental cap. If you have further questions, you should consult with a local real estate attorney who can offer you proper legal advice on the matter. Good luck!

Delinquent Owner Causing Big Mess at 3-Unit Condo

S.B. from outside of Connecticut writes:

Dear Mister Condo,

I live in a 3-unit condo that was converted from a single-family home 2 decades ago. When I closed on my condo, I was required to give the HOA a sum of money to cover my share of an estimated driveway repaving that was planned in a year (I have this in writing in my P&S and the closing papers). Before that could happen, and almost right after I moved in, the roof sprung a leak. Being tapped out on my recent purchase, I told the Trustee they could use half the money I put in for the driveway and I would pay half out of pocket for my share for the roof; when time came for the driveway in the next year, I would pay the difference. As it turned out, my half share of the roof and the whole share of the driveway amounted almost perfectly to what I put in at Closing. Now that it’s time, I’ve been asked to pay the whole amount of my share for the driveway out of pocket. The Trustee is saying she used the rest of my sum to cover a unit that couldn’t pay for the roof (they’re on a payment plan but it’s going to take them 2 years to pay the HOA back!). I asked if I would be reimbursed and was told no. I’m arguing that I was assessed at Closing and paid my share. She’s arguing that once the money went into the HOA reserves it became common funds for her to use as she saw fit. Can she really make me pay twice and not reimburse me given that the offending unit is paying back the funds albeit slowly?

Mister Condo replies:

S.B., ouch! Small condos like yours can have some mighty big problems when unit owners don’t have the money to sustain maintenance and repair items equally and as outlined in the governance documents. You may very well have the right to sue your association to get your money back but the real question is one of value. Would it be worth it? Probably not. As the funds from the delinquent unit owner come in, the association is made whole. In theory, that would be the time for you to pay for your driveway as originally agreed, less the money you already paid for the driveway. Your trustee is wrong in assuming that any money put in the Reserve Fund can be used at the Trustee’s discretion. However, to enforce your rights as a unit owner, you will have to sue. Again, it is a question of value. In a small association like yours there is rarely any tangible amount of money in the coiffeurs to make a lawsuit worthwhile. It is in everyone’s best interest that you get along. Play nice and ask for fairness. If you can’t get the trustee to play nice, consider selling. It would likely be easier in the long run than doling out good money on a lawsuit that may not yield any money to you at the end. It’s your choice. Good luck!

Condo Documents Dictate Double Late Fees and Fines

I.G. from Middlesex County writes:

Dear Mister Condo,

Our By-Laws stipulate a late fee of interest plus prime rate if a payment is 30 days past due. The Rules and Regulations stipulate a $100 fee after 15 Days. Which prevails? One or both?

Mister Condo replies:

I.G., hopefully, every unit owner pays on time and you don’t have to implement late fees. It is not uncommon for governing documents to have conflicting terms. It is up to the Board to correct the documents and implement a proper late fee policy. Since one dictates a fee after 15 days and the other dictates a fee after 30 days, you could make the argument for both being applicable. However, it would make more sense to have just one fee and a detailed collection strategy for what happens at 30 days and what happens at 60 days, with 60 days being the time the matter is turned over to the association’s collection agent or attorney. I hope you never need to do that. Good luck!

Condo Owner Must Produce Common Fee Check Archive

A.B. from Hartford County writes:

Dear Mister Condo,

The association where I reside is on its third management company since I moved in back in 2009. The biggest issue with the last two management companies is their lack of proper financial records and management of the associations funds. Our current management company is in the process of doing an audit on each unit based on the files/paperwork they were able to gain access to from the previous management companies. I provided a reconciliation when the second management came on and since I keep good records, I was able to put together a reconciliation of my payments since. I received a letter from the new management company telling me I owe a balance on my account and that I need to provide back-up (check copies). I am able to submit a list of checks and their bank posting date, but the check copies are going to cost me money. (My bank, as well as many others no longer provide check copies with statements. And I have e-statements). Can they force me to provide check copies or is my list of checks and the bank posting dates sufficient? Is it fair for me to push back and have them pay the fee for the checks they are requesting? What are my rights? I know for a FACT I do not owe any back payments.

Mister Condo replies:

A.B., I am sorry that you find yourself on the receiving end of what must feel like financial incompetence by the previous management companies. The reality is that the banks do charge a very small fee for providing archives of checks but that is just a cost of doing business. I would rather pay the very few dollars it will cost you to reconcile your payment record with the association than find yourself having to defend a collection action by the association. The association has the right to ask for these records and you have the right to provide them or not. If you don’t, the association will very likely hit you with late fees and other collection expenses. You don’t want that so go ahead and work with your bank to provide the records the new management company seeks. And, by all means, keep copies of any checks they provide so you don’t find yourself doing this again should the association hire yet another management company in a year or two. Good luck!

Condo Board Member Education Expense

C.L. from Hartford County writes:

Dear Mister Condo,

Can the association pay for a class or course upfront for a board member instead of the board member paying for the course first and then getting reimbursed?

Mister Condo replies:

C.L., I don’t see how it matters. Either way, the association is paying for the course. Unless your documents forbid the association from paying for such items upfront (most unusual), the Board Member can have the association either pay up front or reimburse them for the class or course. I am glad they are getting training! All the best!

Condo Roofers Damage Unit Owner’s Air Conditioner

R.G. from outside of Connecticut writes:

Dear Mister Condo,

In doing work on the roof of my mom’s large condominium, they needed to move the air conditioners and my 86-year-old mother is the only resident out of maybe 50 units whose A/C was damaged. The contractors admit that they dropped materials in it and said they had fixed it earlier in the week but today, Saturday, it won’t cool. It is set at 75 and remains at 80. Who is responsible and how can I best advocate for my mom? The management company calls the contractor and the contractor claims that it isn’t his fault, it’s the unit’s. The unit is over 10 years old… BUT IT WORKED BEFORE THEY MOVED IT AND DROPPED STUFF IN IT! I appreciate your help.

Mister Condo replies:

R.G., I am sorry that your mother’s air conditioner was damaged. Most states require that a damaged product like an air conditioner be replaced at the market value at the time the damage occurred. My guess is that a 10-year-old air conditioner isn’t worth too much, regardless of how well it worked before it was damaged. Clearly, the blame lies with the roofing contractors who moved and damaged the unit. However, the real question here is liability and cost of replacement. You can continue to complain to anyone who will listen but unless you can prove the value of the air conditioner to be significant. I am afraid your best bet will be to simply purchase a new air conditioner. I am sorry I don’t have better news for you. Good luck!

Movers Damage Condo Elevator; Tenant Being Held Responsible!

H.R. from Fairfield county writes:

Dear Mister Condo,

Hi! I rent a condo in a 3-floor building. I bought furniture and the delivery guys used the elevator and damaged a little bit inside of elevator. The manager made me go after them to pay to fix it, then they paid like $5000 but when somebody came to fix to change the panel on the wall said the panel are part of the whole wall and need change wall recalibrate elevator and the manager call me again asked me $13000 more to fix it or go after them again. All this start happened before my landlord lost the house with the bank so the manager sent him statements of elevator fees before now and somebody told me if he lost the house that problem is of the bank, the bank takes the condo with all debts? But now the board put that amount under my name. I am the tenant. And I told the condo manager that the rules said the landlord is responsible for any damage of the tenants and visitors of the tenants and she told me that rules change because of state but this happened a year ago when she recognized her condo rules. Help me please if she can make pay even the house is bank owner now is in process of foreclosure.

Mister Condo replies:

H.R., I am sorry for your problems and I am sorry I couldn’t get to your question sooner than now. I expect this problem to be resolved by now but, needless to say, since I am not an attorney, I offer no legal advice or remedies in this column. The association is going to go offer you, your landlord, the moving company, even the new bank holding the mortgage in an attempt to collect the money needed to repair the damaged elevator. It is hard to imagine a moving company doing so much damage to an elevator but that is a matter for the courts once the lawsuits get under way. Your question to me is whether or not you can be found responsible. My answer is that you caused the situation that lead to the damage and that may be enough to hold your partially responsible. My advice would be for you to hire an attorney if you are named in a lawsuit so that you can best protect your legal interests. The party with the most responsibility is the moving company, who it looks like has already paid $5000 ($5000!) for the damage they were initially accused of causing. They may be on the hook for the rest of the cost as well but that doesn’t mean you won’t be named if a lawsuit ensues if they refuse to pay. All the best!

Condo Construction Defect Loan Cannot be Paid Off Early

W.M. from outside of Connecticut writes:

Dear Mister Condo,

Initial construction had problems – BOD suit – went on $2.7M legal fees – won but he filed bankruptcy – urgently needed work done – BOD/Association took loan against common property – $10M – doubled condo fee – was to be provision for buyer pre-pay – never done – demand they do it. Questions: 1) Propriety of binding all condo owners to overall loan – do not allow a owner pre- pay – 2) Isn’t this unusual – As expected, large condo fee has deterred sales.

Mister Condo replies:

W.M., I am sorry for all of your new association’s problems. Construction defects can be quite expensive as can the lawsuits to chase down the developer. In this case, it looks like good money was spent chasing bad to try and recover the funds for the association. As is the case, the unit owners are left footing the bill. You would need to check your association’s governing documents to determine what authority the Board had to negotiate a loan on the part of the association and their ability to limit unit owners’ ability to pay off their portion of the loan at their discretion. You asked if it was unusual and my answer is that it is not. Most newer associations have the ability to enter into a loan agreement on behalf of the association. Depending on how they negotiated the loan, they may not have the ability to pay off the loan early, which would limit the unit owners’ ability to pay off their portion early. In my experience, that particular term of the loan would be unusual but not unheard of. You might ask the Board to refinance the loan with a lender that would allow the association to pay back the loan early if unit owners wanted to do so, However, that is easier said than done as a new loan would carry additional closing fees and costs. My advice would be to simply make your increased common fee payments until the loan is retired or ask the Board to look into refinancing the loan in a year or two, especially if loan rates stay low. Good luck!

No, the Condo Reserve Fund is not the Board’s Cookie Jar!

B.C. from outside of Connecticut writes:

Dear Mister Condo,

Is a Reserve Fund to be used for only the intent that describes the Reserve Fund or can the money be taken and used elsewhere for replacement of an item normally taken care of by maintenance. This item is an accessory item and has no bearing of the intention of the Reserve Fund. It is just that this particular fund has an excess in it therefore has become the resource for the project.

Mister Condo replies:

B.C., thank you for the question. By it’s nature a Reserve Fund should never have “an excess in it”. Reserve Funds are for wear and tear that is occurring on the common elements each and every day. There should always be money in the Fund as the wear and tear occurs daily and the common element replacement is a known future expense of the association. Having money in the Reserve Fund to pay for those expenses is critical and vital to the financial well-being of the association. However, it is tempting for Board members to “borrow” from the fund to pay for other items the association needs now. Such would seem to be the case for your association.

As you can imagine this is a really bad idea. For the most part there are no laws protecting the Reserve Fund. They are an asset of the association and, as such, under the Board’s control. While the Board has a duty to protect the association, which includes protecting the Reserve Fund, they also have to be practical when it comes to the association’s expenses. It is unfortunately quite common for Boards to tap into their Reserve Fund to pay for non-Reserve Fund items. It’s just too easy and too tempting to do so. If the Board has an immediate plan to return the money, there may be no harm and no foul. However, these good intentions are often overlooked when it comes to increasing common fees or asking for a Special Assessment to cover the money borrowed so it doest get replaced and the association’s once healthy and adequate Reserve Fund becomes underfunded, creating a swath of problems for future association members.

The best policy for the reserve Fund is one of custodial guardianship. The Reserve Fund should be used only for the items it was designed to protect and maintain. Any extemporaneous projects that arise should be paid for with other funds, i.e. special assessment or increased common fees. If your Board has no plan to return the money to the Reserve Fund, you would be wise to raise the issue at an upcoming meeting. If your Board members are not willing to perform their fiduciary duties of protecting the association’s assets, such as the Reserve Fund, it is time for some new Board members. All the best!