Category Archives: Financial

Condo Developer Transition Turmoil

S.C. from Litchfield County writes:

Dear Mister Condo,

Our Board does nothing. No communication, they don’t respond to our questions very well, they are not transparent when they communicate among each other (which is not too often) and my biggest beef, they refuse to fix our crumbling infrastructure (roads, outside siding, fascia boards, etc.). It’s one delay, one excuse after another and this has been going on for almost 3 years. Money is tight, they do not properly fund our community yet they are raising the dues and still operating with a negative balance. No one on the board lives here full-time and the president and one other member work for the developer. Clearly, their priorities are not in sync with the homeowners. Most residents will not say a word for fear of being the bad one or simply a case of extreme apathy. I want to round up the troops and have all the board members (well, 3 out of 4) removed. Having been the president of the association and property manager, I have plenty of experience.  I do not know what kind of reaction I will get but I do know there will be some support. Any response from you would be great and I look forward to it. Thank you.

Mister Condo replies:

S.C., I am sorry that your condo Board is not performing to your expectations. However, from what you have told me, the association is still under developer control so the Board truly has limited power during this time period. Once control is handed over to the association, things will change because no one will be beholden to the developer. The association governs itself and many of the items you discuss can be addressed through democratic elections of interested and able volunteers. Now, if the developer has broken covenants with the owners and you think a lawsuit is in order, you might want to discuss your situation with an attorney. However, new owners like you describe may not go along with spending money to sue the developer so you may just need to wait until the developer transition period is complete. If I have misread your letter and the developer transition is already complete, you simply need to elect new leaders for your community. You will need volunteers ready, able, and willing to serve. They will need training and support. You should also consider hiring a community association attorney verse in developer transition, and accountant, and a property manager if needed. The developer’s team was there to support the developer, not the community association. Getting the right folks in place is vitally important to your association’s success. Your local CAI Chapter can help you find the resources you need. Visit http://caict.org to learn more. Good luck!

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!

HOA Bills Unit Owner for Repair Team’s Lack of Unit Access

J.C. from outside of Connecticut writes:

Dear Mister Condo,

The unit above me leaked into my garage. The owner happens to be on the Board of Directors. He is having the HOA pay for it. Now, I got a bill from HOA that my tenant was not home for them to do the work.

Mister Condo replies:

J.C., well this is certainly a series of unfortunate events. I am sorry for your troubles. Typically, the association carries insurance for damage caused by your fellow unit owners. The fact that this unit owner serves on the Board of Directors is irrelevant unless you are alleging wrongdoing on the part of the Director. From what you have told me, I do not see any wrongdoing here. The Director is also a unit owner and protected by the same association insurance that you are. The HOA dispatched a repair operation to your unit, which is what they are supposed to do. Was their communication between the HOA, the repair firm, and you or your tenant? If so, and your tenant agreed to be home when the repair team was dispatched yet failed to be there, I can see where the HOA would assess a fee to you for the cost of the repair team not being allowed access to your unit. If there was no communication that a repair team was coming and they are still charging you, I would challenge that fee and maybe even speak to an attorney about the fee to see if it is something you could sue over. Chances are the amount in question is too small to sue over. The bottom line is that you want the repairs to your unit made so work with your HOA to make sure that happens. If your tenant can’t be there, you may have to be there yourself to make sure the repair team has access. All the best!

Complacent Condo Owners Liable for Board’s Poor Performance

F.M. from outside of Connecticut writes:

Dear Mister Condo,

I joined the board a year ago. The other board members are there for decades, not by vote but because we never reached the minimum quorum to carry out an election. After investigation, I found several flubs in the past decisions that led us to severe loss to our condominium. One of them, amounts to almost $300,000 in losses with the cost of irrigation water. The association has been paying the local utility company by the highest water rate when it should be 70% lower if they had applied with the utility company for a lower rate based on the size of our property. The lower rate was available since 2008 and it was very easy to learn about. Another issue is the roofs of our buildings. The wooden shakes were replaced in 2004 after damages caused by a hurricane. However, as I learned, the wooden shakes replacement was not done by Standard Building Code. The association did not hire an architect or engineer to guide them in the reconstruction process. As a consequence, the roofs were replaced by local contractors and are now in very bad shape, will not last much longer and the overall aspect is detrimental to our property values. Another issue is the most recent, and involves the resurfacing of our tennis court that had been in bad shape and useless for years. The association knew that the ground soil was sinking and that the soil needed to be addressed beforehand. Instead, they approved a cheap painting for $7,000. The tennis court is visibly off level. Considering the way decisions are made by the board, I am afraid that our condominium will suffer further downgrades if action is not taken to remove and replace the board members. Because of the last recession, more than 50% of our units are now rental units. It will not be an easy task to obtain signatures of 75% of all property owners to remove the board members. My question is whether a legal action to compel them to leave is a valid option.

Mister Condo replies:

F.M., I am sorry for the situation you find yourself in. I am not an attorney so I cannot offer you legal advice as to whether a legal action to compel the Board to vacate their office is a valid option. However, I will tell you that, in my opinion, it is not a valid option for the following reasons. Your association is a privately held, not for profit, corporation. The corporation was founded to govern the association and unless you can cite an explicitly illegal activity, the Board has done nothing legally incorrect. In fact, for decades, the unit owners of your association have returned them to office at Annual Meetings, where democratic elections have been held. Lack of quorum only shows that unit owners didn’t care enough to participate in the governance of their association. Shame on them for doing so as all unit owners have paid the price over and over again for their lack of attendance. If it were me, I would sell my unit and get out before any further financial damage occurred. That is an option available to you. If you wish to remain and try to effect change, you will need to seek other like-minded unit owners to run for election to the Board and get enough votes to win. If you think you have the votes/signatures to force a recall election prior to the Annual Meeting, you can certainly follow the steps on your governing documents to do so. However, with so many absentee owners, I agree with you that would be unlikely. Annual Meetings are typically your best bet for a changing of the guard. You will need to campaign for new Board Members and be sure they are ready to serve. You should reach out to resident unit owners ahead of time and write to absentee unit owners to encourage them to support these new candidates with a proxy vote. Change to association governance comes from within the association. Simply doing an inadequate job of managing the association resources isn’t enough to have Board members removed. It takes a fresh batch of candidates to unseat incumbent Board Members. And guess what? If your fellow unit owners don’t support that change, it isn’t going to happen. Good Luck!

Costly Condo Leasing Restrictions

R.F. from Texas writes:

Dear Mister Condo,

Years ago (before I bought my condo in Texas) the HOA passed a Standard Operating Procedure (SOP) and made it mandatory that all rentals go through their onsite management. If I rent my unit out on my own I must pay the full 40% fees + a penalty. Is this even legal for them to force me to use them?

Mister Condo replies:

R.F., leasing restrictions such as the one you have described are not uncommon. Using a particular agent for leasing agreements is one way the Board of the HOA can be certain that all leasing rules and regulations are adhered to. The penalty for not leasing through their agent is designed to discourage the practice and, at a 40% fee plus penalties, I imagine it is particularly effective. While it does seem unfair that you don’t have any other reasonable option for renting your unit other than by using the onsite management company, my guess is that the onsite management company is an excellent and efficient way to keep your unit rented out. Since anyone interested in renting will ultimately end up at their doorstep, there is a greater likelihood that they will rent it out quicker and to a qualified renter. All the best!

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!

Condo Let Lapse FHA and VA Certification

C.W. from New Haven County writes:

Dear Mister Condo,

Our complex has always maintained FHA/VA certification. This certification certainly can be viewed as either a positive or negative by some. As I understand it, last fall the government separated the two, requiring two separate certifications. My complex let the certification lapse and then chose only to renew the FHA certification. Now, the FHA cert costs about $1800 with attorney’s fees and is only good for a limited time (I believe 2 years), the VA certification is a lifetime certification and a one-time expense of approximately the same amount. There was nothing in our complex financials reflecting payment or budget for either. There was no notification from the board regarding maintaining or dropping either. I only found this out because I had put my unit for sale and was notified of the lack of certification. After going to the Board, they said they were unaware of the separation of certifications. I lost my first buyer because it was during the lapse of either, and then lost my second buyer because of the non-VA renewal. The board originally asked if I would front the cost and they would reimburse me at the closing, which I agreed. They then reneged and asked me to pay half, then they said they would not reimburse me at all but would supply the attorney with the paperwork. I have lost both buyers because of this. I am now 4 months later with no buyers and multiple price drops. Do I have some sort or recourse because of the lapse and non-renewal and no notification or owner vote regarding this? Certainly, I would think that this certification has a reflection on our unit value. Thanks.

Mister Condo replies:

C.W., I am certainly sorry that you have lost a few buyers for your unit while this debacle unfolds. I should point out that I am not an attorney and offer no legal advice in this column. You should speak with qualified counsel to see if you have any type of legal remedy worth pursuing. You are correct to point out that there are differences between FHA and VA certification. Generally speaking, FHA certification is required for the condominium association for any mortgages that are FHA insured (most are these days). VA certification is specific to the VA-backed loan program and has a different set of requirements. If your complex had VA certification at one time, I am not sure how they lost it. FHA certification is a renewable program so it does have to be sought and reapplied for from time to time as required by the FHA. To optimize mortgage opportunities, many condominium associations opt for FHA certification. Not all bother with VA certification as it is a much narrower pool of buyers who require such certification. Neither are required to be carried by the association, which is why I question your ability to claim an association-caused loss because of the lack of the certification. Your pool of potential buyers is certainly smaller without the FHA certification but you are still unencumbered by the association when you do sell. The Board should take the best interests of all unit owners into consideration when deciding to renew or let lapse FHA certification. Ultimately, if the unit owners want it and the Board refuses to get it, it is time for a new Board. All the best!

Condo Insurance Payment Made to Unit Owner for Building Damage

S.V. from outside of Connecticut writes:

Dear Mister Condo,

There was damage to the outside of our building. Insurance check was made payable in the name of a condo owner, who is the brother of president of condo association, in the amount of $6,000.00. I could not get an answer from either party and the insurance company why this was not made out to the condo association. Was this legal? I don’t know how the money was spent. This was several years ago. Is there a statute of limitations?

Mister Condo replies:

S.V., that is a strange way of processing an insurance claim at a condominium. However, it is not unheard of and without a full review of the insurance and the claim, it would be very difficult to prove whether anything illegal occurred. In fact, the insurance company would more likely be the one to have a claim if they were defrauded out of money. Was the building damage repaired? Was there further money paid for the repair by the association that the insurance should have covered? If there were no additional monies paid out by the association and the damage was repaired, it is probably best to stop worrying about it. I am not aware of a statute of limitations for you to investigate and/or file a complaint with your association on how the insurance money was distributed but to what end? If you weren’t harmed financially, this is really an item for the insurance company to worry about, not you. All the best!

Lack of Certificate Prevents Condo From Closing

J.V. from Manhattan, NY writes:

Dear Mister Condo,

My condo is in contract small 4-unit Brownstone in Manhattan. We are all on the Board, one man is the president that we all elected solely based on gender. Had I known that he was a very difficult person I never would have agreed. My issue is our management company whom has since been terminated never renewed our temporary c/o (that’s another horror story). I cannot close without it. The “president ” is not allowing me to move forward with an architect or an expediter (I’ll even pay for that first payment) to get the process started. It has been over a month. He wants proposals and very worried about money. We do not have very this important certificate which is dangerous. But I particularly need it to close. He may cost me my sale which gives me much stress and sleepless nights.

I’ve tried everything, talking, meetings. Now he’s in Italy for 2 months. What can I do as a Board Member with a pending sale to move forward so I can close? I don’t know where to turn. He is a blocker. Does he have this power to make me potentially lose my buyers? Also, my buyers are giving us 120 days (now less) to get the Temporary CO. They want my unit and I want to move!!!!

Can you advise or direct me to someone who can help?

Mister Condo replies:

J.V.,

Hello! Please understand that I am not an attorney and offer no legal advice in this column. From what you have shared with me, you will likely need an attorney to help sort these matters out. I am sorry to learn that your previous management company did not file the proper paperwork with the city to keep the building’s Certificate of Occupancy (c/o) up to date. You may have legal action against the association for allowing that to expire. That being said, unless you are able to file the appropriate paperwork to get your Certificate back in good standing, you are very much at the mercy of the Board President, who appears to be a difficult person and indisposed for two months. Typically, unless your governing documents specifically call for the President to take action, a duty such as filing for the Certificate could fall on any officer. Since there are only four of you on the Board, you may be as qualified as any other Board Member to handle the transaction. You should check out this web page for some insight: https://www1.nyc.gov/site/buildings/homeowner/certificate-of-occupancy.page

While your President is following a Good Business Judgment rule by getting bids for the architect or expediter needed to satisfy the CO requirements, if you are financially harmed by the lack of the CO, you may also have a case to sue your association. Again, speak with a qualified attorney before taking any action.

I am afraid I don’t have better news for you. The failure to have an active CO on file for your association is a most unfortunate event, caused by a series of other unfortunate events. If you do end up suing your association, it should serve as a wake-up call for them to not let the CO slide again. As you have said, it is a very important certificate in NYC. It should be treated so nonchalantly by the Board. 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!