Category Archives: Governance

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!

How To Enforce Condo Building Renovation Requirements

S.O. from outside of Connecticut writes:

Dear Mister Condo,

When a new owner renovates – without any discussion with the board/management and does things that should not have been done – what can board do? Can they make them halt, and make them put it back to the way it was, and if so how?

Mister Condo replies:

S.O., the short answer to your question is “yes” but it depends on the condo’s governing documents. Typically, interior renovations are subject to less scrutiny than exterior renovations but there are still rules that need to be observed. Common problems include replacing carpeted floors with hardwood or laminate flooring, creating an undue noise burden to unit owners above, below, or on either side of the unit. Regardless of the type of violation, the Board needs to issue a letter to the unit owner and explain which rules they are violating. If the unit owner complies, there is no problem. When they don’t comply, it is usually lawsuit time so get the association attorney involved. If/When the association prevails on court, a court order to return the unit to its previous condition is issued. If the homeowner still refuses to comply, the association attorney can then take further action to enforce the court order. It can be a quite a bit of ugliness but that is the nature of enforcing the rules at a condo. You can’t have unit owners deciding on building modification for their personal unit that effects the uniformity of the community and the enjoyment of neighboring units by their owners. 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!

Ownership of Burst Condo Water Line Questioned

T.G. from New Haven County writes:

Dear Mister Condo,

If a hot water line bursts in an outside wall who is responsible, the unit owner or the board? Also, the line was not where the Board said it was. Our kitchen sits above our neighbor’s garage. The board said both hot and cold lines are in the ceiling of the garage.

Mister Condo replies:

T.G., typically when water lines burst it is the responsibility of whoever owns the area where the line has broken. In other words, if you own from the wall in, a line that breaks outside of your walls is very likely the responsibility of the association. Regardless of what the Board says about it, a reading of your documents will very likely clear this up. If, by chance, the documents don’t appear to provide you with a good answer, it is time to speak to an attorney who can read any “legalese” that might make a simple determination possible. There are exceptions, of course. I know of some associations that have allowed modification of water lines at owner’s requests and along with the approval to do so came the responsibility to maintain the water lines. This is highly unusual though and does not sound like your situation. If you do own all of the interior walls where the water line burst (garage ceiling is a good example, a bathroom supply line would be another) then you may be on the hook for the repair. Like I said, when the unit owner and the Board don’t agree, it is usually time for a legal opinion. Good luck!

Handicapped Condo Owner Forced to Park Two Blocks from Building

T.B. from Illinois writes:

Dear Mister Condo,

I am a disabled person and I own a condo in Cook County, IL There is never any parking and I have to walk two blocks to get to the front door of my building. Is it possible to get an assigned handicap parking spot? If so, what needs to be done?

Mister Condo replies:

T.B., I am sorry you have such a long distance to cover to get from your parking area to your unit. If you read my column regularly, you likely already know what I am about to say. Unit owners may request handicapped parking from the Board at any time. However, the Board is under no obligation to grant the request. The parking areas in most condominiums are private property, owned by the association and under the control of the Board. While they do need to look at your request, it typically puts undue stress on the limited parking resources of the association to grant the request. From the way you describe it, the parking for your building is on the street, which may not even be under the Board’s control. You may need to make a request of your local municipality if that is the case. The first step is to make a written request of the Board. If the Board grants your request, you are good to go. If they deny your request you may wish to make a legal challenge but I wouldn’t expect too much. Good luck!

Condo Parking and the ADA

G.S. from Massachusetts writes:

Dear Mister Condo,

I rent a unit in condo in MA and the question is the following: I believe that one of the handicapped parking spaces in the condominium is “unlawful” since it’s been created overnight by just putting a tab with the handicapped symbol. I made a research and I have learned that in order to be regular, thus lawful, a handicapped parking space must comply with the ADA regulation. In this case, a part the handicapped tab sign, this parking space doesn’t have those required features. Does the condominium need to modify this parking space because of ADA requirements or because it is a private parking lot ADA doesn’t apply? How to address this issue?

Mister Condo replies:

G.S., you have answered your own question. Typically, condominium associations are private property and are not subject to the same requirements for handicapped parking as a public parking area like a supermarket might be. There are exceptions. For instance, if the club house were rented out, it could be argued that the grounds are not private and that commerce is being conducted there, in which case the higher standards of the ADA would apply. The bottom line is that an association only needs to make a reasonable consideration for granting handicapped parking. If your association is a private entity, they are likely in compliance with what they are required to do. If not, you should alert a Property Manager or Board member so that they can take corrective action. Good luck!

Condo Board Liability for Underfunding the Reserve Fund

G.H. from outside of Connecticut writes:

Dear Mister Condo,

What are the recommended best practices for boards to abide by when deciding whether, or not, to adjust annual Reserve Fund contributions to take inflation and interest on reserves into account? Is there any liability assumed by a Board if they do not take these two factors into account when finalizing the annual budget and establishing the HOA’s contribution to its’ reserve fund?

Mister Condo replies:

G.H., there are several states that have enacted legislation to force associations to use Reserve Studies and to adjust their common fee contributions to keep the Reserve Fund at adequate levels. A list of these states can be found at the CAI website at https://www.caionline.org/Advocacy/StateAdvocacy/PriorityIssues/ReserveStudy/Pages/default.aspx. So, if you live in California, Delaware, Hawaii, Nevada, Oregon, Utah, or Virginia, your association is required, by law, to have a Reserve Study in place. The page also lists Washington State as having a statute that “encourages”, not “requires” a Reserve Study to assist the Board in determining the appropriate level of common fees for an association. Even if you don’t live in state where it is mandated, Reserve Studies are vital tools for associations to know that they are following the Best Practices and sound business judgment in running their associations. I am not aware of any liability assumed by the Board for not taking inflation or interest into account when determining Reserve Fund contributions but a well thought out Reserve Study would certainly do so. In other words, if there were $100,000 needed to replace the common elements in 20 years and only $100,000 were budgeted to do so, factors like inflation and interest would likely make that number too low when the time came to actually make the expenditure to replace the common element. On the other hand, a well-funded Reserve Fund can actually offset some of the interest expense by being invested in a reasonably liquid asset, such as a CD. Hope that helps!

Change Needed in Condo Leadership

C.C. from New Jersey writes:

Dear Mister Condo,

Do you know of any condominium law in the state of NJ that would limit a single person holding the same position on the board as president for many, many years? The power is being monopolized and we need a change!!

Mister Condo replies:

C.C., the power to change the Board is in your hands! Board members, including the President, are elected by the unit owners. You simply need to vote new people in to office and the old ones go away. What happens far too many times is that the association is unable to produce new volunteers to serve on the Board. Guess what happens then? The folks who have been serving continue to serve, regardless of whether they do a great job or a terrible job! If you want to see a change in leadership, you need to take action. You may need to volunteer your own time to serve on the Board. You will certainly need to convince your fellow unit owners to also serve and to support new candidates in elections. Otherwise, you will keep getting what you’ve been getting. Good luck!

Who Pays for New HOA Parking Area?

R.W. from outside of Connecticut writes:

Dear Mister Condo,

We have three towers in our development with three separate HOA’s. However, there are some common items shared such as parking and entry gates. Have you ever determined what causes most parking problems? Number of condos/owners? Number of bedrooms? Square footage? Our development does not allow rental for less than a year. Therefore, we have no short-term rental parking issues. However, with 66 total units, we only have 96 parking spaces/garages. The garages are deeded owned units, the other parking has been on a “first come first served” basis. Two of the towers have 25 units and our building only has 16 units. All our units have deeded garages, the other two buildings have unit owners without a garage. We are trying to establish the best manner to distribute the cost of adding additional parking for the three-unit complex. Should we assign cost based on number of units, number of bedrooms, square footage, or is there any reference you can provide for other distributions of cost of similar problems.

Mister Condo replies:

R.W., the only thing consistent about parking woes at condos and HOAs across the country are too many cars per unit. It is not uncommon for there to be only one parking space per unit. Combined with a garage or a reasonable amount of Guest Parking, that usually does the trick. But, wait, Unit 17’s son and his wife have just moved in with the owner of Unit 17 and now there are three cars instead of one assigned to that unit. And then another unit is rented to a family with three cars, and so on it goes until the parking lot is at capacity and residents have nowhere to park. This scenario plays out time and time again at condos and HOAs. The only real solution is to have a strong and enforceable parking program. As for the cost of any additional parking, the formula is typically to follow the percentage of unit ownership formula for all units. If the three-unit complex is its own HOA, then the cost is born by the unit owners according to the formula. However, if the parking lot is owned by the Master Association (you mentioned shared parking), then the cost may be split out using the Master Association formula. It really depends on how your governance documents read. If you haven’t already done so, this is a great time to get the opinion of the association attorney on the matter. All the best!