Category Archives: Financial

Condo Price Rebound After Settled Lawsuit

J.B. from outside of Connecticut writes:

Dear Mister Condo,

Our condo dropped significantly in value just like every other condo community around us when the economy collapsed in 2008. In the meantime, our HOA began a litigation against the builder. This meant that when prices of other communities began to rebound a few years ago, ours remained low because mortgages were generally unavailable to purchasers and it has been all cash sales. All other condo communities surrounding us have now rebounded to pre-recession value, but our community has remained low in price due to the litigation. We just received notice that all parties have settled and the court ruling will be within the next couple weeks. We would like to sell our condo and are wondering how long it will take to see our condo value rebound now that the litigation has ended. Can we start using other similar communities as real estate “comps”? Thank you!

Mister Condo replies:

J.B., I am sorry your condo association was forced into litigation against a developer. Lawsuits can have long-lasting repercussions against associations including the financial burden of funding the suit when monies could be used elsewhere or put in Reserve, creating a strong financial position for the condo, which is desirable to an educated purchaser. That being said, if your condos look as nice as others in your market, there is no reason to think the units shouldn’t rebound now that mortgages are available. Price is driven by market demand. An encumbrance like a lawsuit can hinder demand but with the suit out of the way, I can’t think of any reason the prices shouldn’t rebound quickly. Make sure the unit is in good shape and that the association is doing all it can to keep the curb appeal in good order. The right realtor will market the unit properly and the market will dictate the price. Good luck!

Who Pays for New Condo Screen Doors?

J.W. from outside of Connecticut writes:

Dear Mister Condo,

I am part of a three-unit condo association. The association is looking to purchase screen doors for all three units. One of the units has one door and the other two unit have two doors so we would purchase a total of 5 doors. We plan to use condo fees funds to pay for doors. Is it equitable in using fees for one door for one unit and two doors for the other two? Is there a simple way to decide how it is more equitable? That is, we all pay the same quarterly dues but we are using more money for two of the units for the doors than we are using for the one condo with only one door. Does it come down to if all agree we just go with it?

Mister Condo replies:

J.W., it all comes down to what your condo documents say about common elements. Typically, all common elements are owned by the association to build, maintain, and repair. If that is the case for these doors then that is the formula you should use regardless of how many doors are on each unit. That is because the common fees are collected using the same formula for paying for the purchase, installation, and maintenance and repair of these doors. If the doors are the unit owner’s responsibility, then each unit owner would buy the doors attached to their unit and would be responsible for their repair and upkeep as well. I have seen it done both ways so it really boils down to what your condo documents say about it. If they are silent on the subject then it may come down what you all agree to. Otherwise, follow your documents. Good luck and enjoy your new screen doors!

Former Condo Board Member Maligned by Fellow Board Member

T.S. from outside of Connecticut writes:

Dear Mister Condo,

I was on a condominium board for several years, sometimes having to do two positions. At one point, I was the President and Treasurer. My question is that I wasn’t very good at keeping receipts. I would occasionally give them to the manager. but when a check was written I put a memo where that check went and to whom.
Now I have an ex-board member that thinks I took money. How can I defend myself if I do not have the receipts to prove all of the transactions? He said he has the bank statement. What can that prove?

Mister Condo replies:

T.S., thank you for your service to your community. Seems that no good deed goes unpunished here. If you are being accused of a crime, you should speak with an attorney in order to defend yourself. If you are being slandered by an ex-board member, you might want to speak to an attorney about what rights you have to stop this slandering. Bank statements are nothing more than a record of checks, deposits, and transfers. If you didn’t write any checks to yourself or transfer any money into your private account, you likely have nothing to worry about. Someone “thinking” you took money is far different from someone claiming you took money and filing a criminal report against you. If you have nothing to hide, you can confront this person and ask them to either prove their allegations or stop slandering you or you will sue them. That will usually quiet a contentious accuser who cannot prove his/her case. Remember that in this country you are innocent until proven guilty. From what you have shared with me, you did nothing wrong and there is no proof that you did. That really is the end of the story. Good luck!

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 Water Submetering Does Not Guarantee Lower Common Fees

M.B. from outside of Connecticut writes:

Dear Mister Condo,

My condo fee includes water. The Association wants to install individual water meters for us to pay for our own water but does not want to reduce our condo fee. Shouldn’t that percentage of the condo fee come back to us now that we pay our own water bill?

Mister Condo replies:

M.B., the decision to submeter water is gaining in popularity and makes perfect sense for many associations. Of course, the approval to move from an included amenity to a paid amenity usually requires a vote of the association unless the Board has the authority under the governing documents to make the decision. Once the decision has been made and properly voted upon, the submetering begins and the association is no longer responsible for providing the amenity. The reconfiguration of the budget and common fees resulting from this line item being removed from the budget is an entirely separate matter and one that should be addressed at next year’s budget approval time. In theory, lower common expenses to the association should result in lower common fees to individual unit owners. However, as you know, there are many other items that make up the annual budget. Just because the line item for water expense is diminished, there is always the possibility of another line item (insurance, for instance) increasing which could easily offset the savings from water submetering. In other words, the two items are not strictly related, Common fees are set as a result of total expenses, Reserve Fund contributions, etc.. The water expense is just one line item on a larger list of expenses. Be sure to keep a close eye on next year’s budget proposal and common fee schedule. If there is an opportunity for savings, that is likely where you will see it. All the best!

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!

Condo “Marketing Fee” Forces Unit Owners to Use Condo’s Designated Realtor

S.Y. from outside of Connecticut writes:

Dear Mister Condo,

Our condo board discriminates against unit owners who want to list their unit for sale outside the condo realtor. If you list with the condo’s realtor, the realtors commission of 6% is paid from the condo’s 10% “marketing fee” levied when a unit sells. If you use your own realtor, you pay the 10% condo “marketing fee” plus 6% to the realtor.

Many of us want to use our own realtors because the condo’s realtor shows preference to Board members and their friends. If you’ve ever been in a disagreement with the Board, look out, your unit will never sell.

We have considered legal action but this will damage sales prospects for our units.

 

Mister Condo replies:

S.Y., damaged sales prospects aside, I don’t see any other way to remove this obstacle to using a realtor other than the “selected” condo realtor. That being said, I am not sure there is a true legal issue here. The 10% “marketing fee” is a condition for anyone who sells. While I think that 10% is an exorbitant amount to pay for “marketing fees”, from what you have told me it is a rule that has always been in place. Perhaps the Declarant wanted to monopolize all initial sales and resales so the clause was added? Whatever the reason, the 10% is currently the law of the land for your association. How do you and your fellow unit owners feel about this? If there is enough dissent, why not simply vote to have the rule removed? The fee paid by a seller to a realtor is typically negotiated by the seller. Here, the association has already negotiated a permanent seller’s fee of 6% to the realtor, which the association is essentially rebating back to the seller because it is coming out of a 10% “marketing fee” the seller agreed to abide by when he or she originally purchased in to your association. While I will agree that it is a bit questionable, I am not certain it is anything that can be undone by bringing a suit against the association. You have the power to correct the situation by simply eliminating the “marketing fee” or making it 4% (10% – 6%). Either method would leave the unit owner free to select their own selling agent at whatever fee they negotiated. 6% is common but I know of many markets across the country where listing fees are far less. Many times, the real estate market dictates what is a reasonable fee versus a “set in stone” flat rate. Good luck!

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!

Condo Reverse Mortgage Woes

R.H. from Wisconsin writes:

Dear Mister Condo,

I am president of a condo association. Currently we have 11 existing buildings that are occupied (2 units per building). There still are 7 more buildings that will be built in the coming years. We basically have 58% of the project built and completed. I understand that you need a certain per cent of buildings completed before you can qualify for Reverse Mortgage as an association. What is that percentage?

Mister Condo replies:

R.H., there are a number of factors that go into determining if a Reverse Mortgage can be granted to a condominium unit owner. Since many reverse mortgages are also FHA backed, the entire association must be FHA approved before any one FHA backed reverse mortgage can be granted. That can be tricky enough when the project is completely built but it is even trickier when the association is still under construction as yours is. Have you sought FHA approval for your condominium association yet? There are pros and cons in doing so but my guess is that you will need to do so if you are getting requests for reverse mortgage eligibility. Rather than go it on your own, may I suggest you work with an industry professional to walk you through the process? Otherwise, I think you will spend an inordinate amount of time on the project and still may not get the approval you need. In your state, there is a local chapter of the Community Associations Institute (CAI). I found an interesting press release on FHA at their website you might want to read – https://www.cai-wi.org/news/cai-government-affairs/ The article deals with the shifting requirements for condominium associations. In other words, today’s answer may be different tomorrow.

If you are seeking a local resource to help, may I suggest you get in touch with them the Wisconsin Chapter of CAI and ask about companies that specialize in FHA approvals for associations like yours? That way you can get a local expert opinion on the feasibility for your association. Good luck!