Category Archives: Financial

Condo Vendors Work for the Board; Not the Unit Owners!

L.K. from New Haven County writes:

Dear Mister Condo,

A company was hired by the Board to do an assessment of the complex and provide a report to the board in order to get a loan. I called the person who did the report to ask some questions and he said he had been instructed not to answer questions from unit owners. All questions have to go to the Board first. No direct contact is allowed. Can the Board restrict unit owners from talking to a vendor hired by the Board and paid for by unit owners?

Mister Condo replies:

L.K., even though it might seem contrary to reason, the vendor was hired by the Board, not the unit owners. The vendor reports only to the Board. That doesn’t mean you don’t have a right to see the report once it becomes part of the association’s records but until then, the vendor, in this case it sounds like a Reserve Study expert, is correct not to interface with unit owners as it might color the report made to the Board. The Reserve Study specialist needs to be completely objective and present his or her findings directly to the Board. Your observation that unit owners have paid for this contractor is not technically correct. Yes, you and your fellow unit owners all pay your common fees but the governance of those funds is the exclusive purview of the Board. This is very similar to paying your taxes to the town or city in which you live. People that work for the town or city are not your employees, are they? No, the same is true for folks employed by the association. They work for the Board and are responsible only to the Board. I hope your Board makes good use of your new Reserve Study. Good luck!

Florida Condo President Facing Multiple Challenges

R.H. from Florida writes:

Dear Mister Condo,

My 24-unit condo by laws say that an audit must be conducted once a year. Florida statutes say every 3 years. In addition, the property manager pushed through a specific contractor and that was 3 times the price but the other directors back her up. I am the president but I can’t get any info from her because she is aggressive and doesn’t let me say a word without attacking me verbally. I am now taping the meetings. A woman is unofficially taking notes but doesn’t sign them. They are not a good synopsis. What do I do?

Mister Condo replies:

R.H., thank you for your service to your community. I am sorry it isn’t a better experience for you. Let’s try and break down a few of the symptoms and see if we can’t get you on the right path. The audit requirement in your governing documents likely override the state requirement as they call for more frequent auditing. If your bylaws called for audits every 5 years, then the state law would supersede your documents and you would need to audit every three years. The contractor performing the audit is hired by the Board. As long as the rest of the Board is OK with this auditor then there may not be too much you can do about it. Ideally, hiring an auditor is no different than any other vendor. Bids should be collected and a contractor selected. If your Board doesn’t function that way, there may not be too much you can do about this particular vendor. Unofficial notes are not the proper method of taking Minutes of meetings. Are there formal Minutes of your meetings? If not, the association is opening itself up to all kinds of troubles. Minutes are the official and legal records of your meetings. The Board Secretary has the responsibility of keeping these vital records. As President, you are functioning as the executive of the association and it is important that you know what needs to be done. If any vital functions are not being handled correctly, you may need to offer assistance or seek new volunteer leaders from within your community to get the job done. Typically, property managers work closely with their Boards to manage the association. The adversarial relationship you have described to me makes me wonder why the association would renew their agreement with the manager. I would encourage you to take a good look at the management company agreement and get competitive bids for when the renewal comes up. There is no reason for the association to continue using a manager that doesn’t work well with the Board. However, if the rest of the Board is satisfied you may find them reluctant to change management companies. I wish you all the best.

Condo Audit Requirement Law

A.B. from New Haven County writes:

Dear Mister Condo,

Are there any CT states law that require audits be performed on Condominiums?

Mister Condo replies:

A.B., in Connecticut, I am aware of no such law. Some states, like New Jersey, do require audits at certain intervals as a matter of law. It should be noted that all audits are not created equal so even if there were an audit requirement, it would have to be detailed as to what was being audited and how often. Depending on the amount of money in play, an audit is a prudent decision as it provides relative confidence that no association funds are being pilfered. However, since Connecticut is home to so many smaller associations, an audit might be an unnecessary expense and truly unnecessary. If the Board is doing a good job of keeping an eye on the money as to income and expense, an audit might be one more useful tool. If the Board suspects there is money that has gone missing, an audit would be a great way to get some clues as to where the money has gone. I hope that helps.

Delinquency Usually Leads to Collection Action by the Condo Association

R.A. from Fairfield County writes:

Dear Mister Condo,

I was previously 3 months delinquent on my common charges with no assessments and the condo association attorneys told me that I had to pay a total of $2000 dollars in order not to go into foreclosure. It seems to me that I am being extorted for money and I am on disability. The reason the attorney said I had to pay the $2000 dollars was for title search, legal letters and other fees that I do not understand. My delinquent fees are only $690 and they are trying to tact $2000 on top of that fee. My HOA dues are $230 a month. I was also told by the management Company that I could not talk to the Board because the matter was out of their hands and I had to deal with them or their attorneys. Being an owner in a condo I know I have rights other than to do nothing. I have been paying my common charges with an extra $100 dollars to put toward the delinquent balance. I know I’m being taken advantage of, can you please help me? Thank you.

Mister Condo replies:

R.A., you most certainly do have rights as a condo owner but not paying your common fees is not one of them. I am sorry you find yourself in this position but what choice does the association have? For the three months that you were delinquent, all of the bills of the association were still paid. Your insurance, your grounds keeping, your maintenance, your unit management, all of this and more were still paid. By not paying your fees on time, you triggered a legal action against yourself. The association turned the matter over to the collections folks (the attorney) and they did what they do which is take steps to insure the association gets paid. In this case, that meant lots of legal fees. While I appreciate that you may face special challenges as a disabled person, I am sure you know there are certain expenses of owning a condo that are recurring monthly – mortgage, common fees, utilities. If you don’t pay your mortgage or utilities, what happens? The bank can take your home or the utilities will turn off your supply. It is the same with common fees. I am sure you will always pay them on time in the future so this may just be an expensive lesson in why. You should speak with the collection folks about your $100 per month repayment schedule to make sure it is acceptable. Ideally, you would just pay off what you owe and be done with it. If you feel your rights as a homeowner were violated, you should most definitely speak with an attorney. I am not a lawyer so I cannot offer you any legal advice on the matter. From what you have told me, you were treated the same as any other delinquent homeowner would be treated. Good luck!

Condo Executive Board Deferring Common Fees as Payment for Service!

B.D. from outside of Connecticut writes:

Dear Mister Condo,

 

Our Executive Board of 5 members has about 80% of their monthly HOA fees deferred as compensation for their time spent working on Association issues. Their contention is that 1099’s need not be issued because the Association is a nonprofit entity as defined by IRS regulations. I believe that is incorrect and that they each should have received a 1099, declared the income, and paid whatever taxes were due to the State and Federal Government. I researched the question and found some information from the National Council of Nonprofits that suggests 1099s should have been issued, but the particular circumstance they cite has to do with charitable nonprofits. I don’t think that makes a difference, but would like clarification before I approach them with the information. Thank you for your time and expertise.

 

Mister Condo replies:

B.D., since I am neither an attorney nor an expert on IRS regulations regarding non-profit organizations, I cannot offer you a legal opinion on this issue. However, I will say it is tremendously unusual for any individual to receive tax-free income from any source and would not likely stand up to the scrutiny of an audit by the IRS. Further, do your governing documents allow for compensation to Board Members? Most condominium association by-laws forbid compensation of any kind to Board Members as it is a voluntary service, meaning the volunteers seek election and then volunteer their time on the Board. If your Board has taken it upon itself to claim compensation for their volunteer efforts, the association may have a legal case to take action against them and have all monies paid to the Board Members returned to the association. Taking funds improperly from the association is theft and punishable with fines and/or jail. It is most definitely time to speak to a qualified attorney from your state to discuss how your Board has decided to conduct business. If laws have been broken, they need to be thrown off the Board and charged accordingly. At the very least, they should return any money they have received in compensation for their voluntary service. Good luck!

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!