Category Archives: Financial

Streamlined FHA Rules and Condo Ownership Requirements

M.W. from Tolland County writes:

Dear Mister Condo,

With regards to the condominium approval process for FHA, I have heard that since HB 3700 was passed. My understanding is that the changes would streamline the application process (possibly extend approval periods), increase investor owned units from 50% to 65% and ease restrictions related to transfer fees. Are you aware of the status?

Mister Condo replies:

M.W., I am neither an FHA expert or a great source for the latest news on FHA. However, I can tell you the full text of this bill is available online at https://www.congress.gov/bill/114th-congress/house-bill/3700/text. Section 301 deals with insurance requirements for FHA. Here are some highlights:

Requirements for Mortgages for Condominiums

(1) Project recertification requirements.—Notwithstanding any other law, regulation, or guideline of the Secretary, including chapter 2.4 of the Condominium Project Approval and Processing Guide of the FHA, the Secretary shall streamline the project certification requirements that are applicable to the insurance under this section for mortgages for condominium projects so that recertifications are substantially less burdensome than certifications. The Secretary shall consider lengthening the time between certifications for approved properties, and allowing updating of information rather than resubmission…

(i) 35 percent requirement.–In order for a condominium project to be acceptable to the Secretary for insurance under this section, at least 35 percent of all family units (including units not covered by FHA-insured mortgages) must be occupied by the owners as a principal residence or a secondary residence (as such terms are defined by the Secretary), or must have been sold to owners who intend to meet such occupancy requirement…

To my eye, M.W., it looks like you are correct on both counts. Of course, with legal matters such as FHA, I always refer condo folks to the experts. In Connecticut, check out https://www.caict.org/page/Directory#FHAfor a list of FHA condo financing experts. All the best!

Unusual Items Paid for by Condo’s Reserve Fund

E.I. from writes:

Dear Mister Condo,

Are Condominium Associations permitted to use Reserve Funds to purchase and install items within units such as intercoms or programmable thermostats. Are these items considered common or non-common items? Each unit receives their own separate electricity bill for which they are responsible for. Would this be different for the purchase of low-flow shower heads where the water bill is paid for by the association and thus receives the savings?

Mister Condo replies:

E.I., just about any common element owned by the Association is eligible for Reserve Fund funding. Each and every asset of the association comes with a cost and a repair or replacement estimate. If the intercoms, thermostats, and low-flow shower heads are owned by the association, then they are common elements (limited or otherwise) and can be included in the list of Reserve Fund items. However, if these items are not owned by the association then the association should not be paying for them, Reserve Fund or otherwise. The bottom line is who owns the asset. As long as it is the association, it is their responsibility. Putting money away today for tomorrow’s repairs and replacements is exactly what the Reserve Fund is for. All the best!

Who Pays to Repair Condo Vandalism?

M.N. from outside of Connecticut writes:

Dear Mister Condo,

I serve on the board and had my property vandalized who’s responsible, me or the Condo?

Mister Condo replies:

M.N., I am sorry you had your property vandalized. Regardless of your position on the Board, if a crime has been committed against your own personal property, it would typically be your responsibility to repair it and, hopefully, your insurance would cover the damage. If association property were damaged, then it is the association’s responsibility to repair the damage. Whatever the damage, I hope you contacted the police. Vandalism is a crime. The Board isn’t the Police Department. The Board governs and enforces the covenants of the association; the local police handle criminal matters. Good luck!

Condo Owner Wants to Sell Condo Carport Space Without Deed

R.R. from Missouri writes:

Dear Mister Condo,

I own a condo in St. Louis County, MO. The condo has 2 carport spaces that we thought were deeded to me however they are not actually on my deed. My neighbor wants to buy a space but I am not sure they are mine to sell. The association thought they were deeded to me as well. Any advice?

Mister Condo replies:

R.R., if you rock the boat hard enough, it just might tip over. Real estate deeds are very specific and legal documents. Right now, you don’t have a deed to your “deeded” carport spaces. How can you convey a deed to your neighbor that you don’t have? You can’t. My guess is that the spaces are actually owned by the association but are for your exclusive use, meaning they are a limited common element and you don’t own them and you can’t sell them. If your deed says otherwise, thane you can do as you see fit. However, from what you have told me, you can’t sell what you don’t own. A better solution might be a friendly handshake and understanding that your neighbor can use one of your spaces. And if he wants to offer you some money for that favor, who’s to say what is happening. All the best!

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!