Tag Archives: Assessments

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!

Grants to Help with Condo Capital Improvements

D.D. from New Haven writes:

Dear Mister Condo,

We have met have at a few CAI Events. Are there any grants available to help with a capital improvement project for an Association in New Haven?

Mister Condo replies:

D.D., thanks for remembering we have met. I love going to CAI events and I love meeting like-minded folks there. Grants are not an area of expertise for me. I looked quickly at the City of New Haven website (https://www.newhavenct.gov/default.htm) and the only grants I saw were for Arts and Cultural programs for Neighborhood Cultural Vitality. I don’t know if your community would qualify for such a grant but it doesn’t appear to me that it would cover a capital improvement project. Typically, such money would come from unit owners in the form of contributions to the Reserve Fund or a Special Assessment if enough money hadn’t been saved over the years. I did look a little further at the City of New Haven website and found this section – https://www.newhavenct.gov/gov/depts/obd/business/get_incentives_n_funding.htmwhich details incentives and funding options. While I didn’t see any particular programs for condos, there certainly seems to be some alternate funding available for certain projects. These programs are overseen by the Office of Economic Development. It would certainly be worth your while to speak with them to see if they can give you further instruction. A directory of the folks you might need is here: https://www.newhavenct.gov/gov/depts/ed/contact_staff.htmAll the best!

Condo Construction Defect Loan Cannot be Paid Off Early

W.M. from outside of Connecticut writes:

Dear Mister Condo,

Initial construction had problems – BOD suit – went on $2.7M legal fees – won but he filed bankruptcy – urgently needed work done – BOD/Association took loan against common property – $10M – doubled condo fee – was to be provision for buyer pre-pay – never done – demand they do it. Questions: 1) Propriety of binding all condo owners to overall loan – do not allow a owner pre- pay – 2) Isn’t this unusual – As expected, large condo fee has deterred sales.

Mister Condo replies:

W.M., I am sorry for all of your new association’s problems. Construction defects can be quite expensive as can the lawsuits to chase down the developer. In this case, it looks like good money was spent chasing bad to try and recover the funds for the association. As is the case, the unit owners are left footing the bill. You would need to check your association’s governing documents to determine what authority the Board had to negotiate a loan on the part of the association and their ability to limit unit owners’ ability to pay off their portion of the loan at their discretion. You asked if it was unusual and my answer is that it is not. Most newer associations have the ability to enter into a loan agreement on behalf of the association. Depending on how they negotiated the loan, they may not have the ability to pay off the loan early, which would limit the unit owners’ ability to pay off their portion early. In my experience, that particular term of the loan would be unusual but not unheard of. You might ask the Board to refinance the loan with a lender that would allow the association to pay back the loan early if unit owners wanted to do so, However, that is easier said than done as a new loan would carry additional closing fees and costs. My advice would be to simply make your increased common fee payments until the loan is retired or ask the Board to look into refinancing the loan in a year or two, especially if loan rates stay low. Good luck!

Poorly Maintained Condo Forces Unit Owner to Lower Selling Price

B.S. from outside of Connecticut writes:

Dear Mister Condo,

How do I sell my condo when it hasn’t been kept up by the people who take our condo fees every month? We have a condo repossessed by the bank, people who don’t pay their condo fees for who knows what reason, and in one unit it’s now a rental. Any advice would be helpful.

Mister Condo replies:

B.S., I feel your pain and I am sorry that you have purchased a condo unit in an association that isn’t fulfilling its obligation to upkeep the association. I am guessing that the association upkeep is the tip of the iceberg. As a seller, you will have an additional challenge during the selling process from astute buyers who are likely to notice the lack of proper upkeep. The good news for you is that it may not have too much of an effect on your ability to sell depending on who the buyers are. You may have to lower your price a bit but you may be doing yourself a favor by getting out before the special assessments hit when the avoided upkeep is no longer optional. A roof will fail, siding will fail, parking lots will fail, the list goes on and on. By selling your unit at a discount, you may just be saving yourself from many thousands of dollars in these upcoming expenses. Get out while you can and be open to offers that might not be at the top of the market for similar units in better kept associations. Good luck!

No, the Condo Reserve Fund is not the Board’s Cookie Jar!

B.C. from outside of Connecticut writes:

Dear Mister Condo,

Is a Reserve Fund to be used for only the intent that describes the Reserve Fund or can the money be taken and used elsewhere for replacement of an item normally taken care of by maintenance. This item is an accessory item and has no bearing of the intention of the Reserve Fund. It is just that this particular fund has an excess in it therefore has become the resource for the project.

Mister Condo replies:

B.C., thank you for the question. By it’s nature a Reserve Fund should never have “an excess in it”. Reserve Funds are for wear and tear that is occurring on the common elements each and every day. There should always be money in the Fund as the wear and tear occurs daily and the common element replacement is a known future expense of the association. Having money in the Reserve Fund to pay for those expenses is critical and vital to the financial well-being of the association. However, it is tempting for Board members to “borrow” from the fund to pay for other items the association needs now. Such would seem to be the case for your association.

As you can imagine this is a really bad idea. For the most part there are no laws protecting the Reserve Fund. They are an asset of the association and, as such, under the Board’s control. While the Board has a duty to protect the association, which includes protecting the Reserve Fund, they also have to be practical when it comes to the association’s expenses. It is unfortunately quite common for Boards to tap into their Reserve Fund to pay for non-Reserve Fund items. It’s just too easy and too tempting to do so. If the Board has an immediate plan to return the money, there may be no harm and no foul. However, these good intentions are often overlooked when it comes to increasing common fees or asking for a Special Assessment to cover the money borrowed so it doest get replaced and the association’s once healthy and adequate Reserve Fund becomes underfunded, creating a swath of problems for future association members.

The best policy for the reserve Fund is one of custodial guardianship. The Reserve Fund should be used only for the items it was designed to protect and maintain. Any extemporaneous projects that arise should be paid for with other funds, i.e. special assessment or increased common fees. If your Board has no plan to return the money to the Reserve Fund, you would be wise to raise the issue at an upcoming meeting. If your Board members are not willing to perform their fiduciary duties of protecting the association’s assets, such as the Reserve Fund, it is time for some new Board members. All the best!

Condo Board Depletes Reserves Without Plan for Replacement

K.C. from Long Island, NY writes:

Dear Mister Condo,

I live in a 40-unit condo community in Suffolk County, Long Island that was built 8 years ago. The sponsor upon his departure left $25,000.00 in Reserves with the recommendation that we continue to increase our Reserves to $35,000. Our present Board recently depleted all Reserves for the rehabbing of the wood on 2 buildings. According to our By Laws, the Reserves are to be used for roofs, roads, curbs, bulkhead. Living in an area susceptible to storms, floods and hurricanes – this makes me extremely nervous. Is there a source I can go to for laws & information on HOA Reserves for NY condos?

Mister Condo replies:

K.C., you are right to be concerned about how the Board is using the Reserve Fund and any of the association’s resources. A substantial Reserve Fund, or lack thereof, is often the difference between success and failure in condominium communities like yours. Unfortunately, the state of New York has been largely silent on the issue, leaving unit owners such as you, to review the association’s governance documents to make a determination as to what, if any, provisions exist that require the association to conduct and maintain a proper Reserve Study and to then properly fund the Reserve Fund so that the unit owners are protected against future maintenance costs which will surely arrive. When the community is not prepared for those expenses, unit owners get his with Special Assessments and/or increased common fees to carry the debt created by an HOA loan used to fund the repairs. It is truly a “pay me now or pay me later” scenario for unit owners. My best advice is for you to review your governance documents and see what they say. Most allude to having a Reserve Fund but few have a required contribution. You may suggest the association adopt a Reserve Fund annual contribution either based on a Reserve Study or even 10% of revenues collected. This will require an increase to common fees but it will help the association survive in the years ahead. You might also suggest the association hire a Reserve Study specialist who can best advise the association of how to plan ahead and save now for tomorrow’s known expenses. It might be an additional expense to the association today but it will provide great peace of mind and fiscal stability to the association in the future. All the best!

Neglected Condo Roof is Only the Tip of This Problem

M.L. from Massachusetts writes:

Dear Mister Condo,

I’m in a condo association of two just outside Boston. We split common expenses 60(upstairs)/40(me). We need a new roof and upstairs neighbors are stalling and finally admitted they don’t have the money. This repair is long overdue and I am concerned that deferring could lead to damage. What are my options?

Mister Condo replies:

M.L., I am sorry for your problem. 2-unit condos like yours can be the perfect arrangement for some and a horror show for others. Your situation, I am afraid, is a bit of a horror show. I am not a lawyer and offer no legal advice here. However, I suggest you speak with an attorney from your area to see what other legal remedies you might have available to you. Your only real option, in my opinion, is to sue the other owner. But that won’t necessarily solve your problem seeing as you already know they don’t have the money. The truth is they can’t afford to live in this condo since they can’t shoulder the financial burden of doing so. In my opinion, your best bet is to sell and leave this problem to someone else. If you wish to fight the good fight and stay, you can either live with the problem roof or you can begin a lawsuit that will likely end in them losing their home through foreclosure and might still not get you the new roof you need. That is a very ugly, complicated, and nightmarish way to live for the next year or two that this would take to unfold. If it were me, I’d put my unit up for sale and spend my time and energy elsewhere. Good luck!

Condo’s Underfunded Reserve Creates Many Problems

C.R. from outside of Connecticut writes:

Dear Mister Condo,

I live in a condo building with 58 units. There are zero adornments except for a very nice meeting room. We have two elevators which travel eleven floors up and down. I am currently serving on the board. Our Reserve fund is at 18K which in my eyes is very low. We will need a major elevator repair in a few years and increasing insurance as well as a rooftop service plan. We have decided to increase HOA dues 15% = $3000. more each month or 20% increase equaling an extra $4000. per month. We want to propose this to our residents and are working on a plan. Currently, there are a few things that need addressing (i.e. a new awning, a better gardener and washing the windows). We do not feel we can do these things with such a low Reserve. We have had many leak and flooding issues some handled by insurance some not. Can you offer any advice?

Mister Condo replies:

C.R., I feel your pain. When it comes to long-range planning and proper funding a Reserve Plan and a commitment to fund the suggested amounts of Reserves is a commitment taken on by the community (through the Board) are always the best solution to problems like yours. However, as many as 7 out of 10 associations decided to underfund or completely fail to fund their Reserve Fund, leaving them in the same precarious situation you now find yourself in. You have answered your question by suggesting that it is time to increase common fees and fund the Reserve. It may also be time to consider a community association loan to make the more urgent repairs. Neither of these options are going to be popular with the unit owners as both will cost them an increase to their monthly fees. Many Board members who wish to continue serving on the Board will be afraid of upsetting their constituents by suggesting an increase to the common fees but that is what needs to be done. How you handle it will determine your success. I suggest an open dialogue with all unit owners. Explain the problem and the proposed solution. It may be a bitter pill for them to swallow but it is the only way to keep their investment properly protected and financially secure. Good luck!

Repair Costs to Condo Limited Common Elements

R.B. from outside of Connecticut writes:

Dear Mister Condo,

When an HOA is paying for repairs of limited common elements that vary by unit (eg decks) and it must be paid by special assessment, can this be imposed based on actual cost of work per unit or must it be equal in % to the common elements. In our case it’s set up as 1/12th – equal for all units even though we are smaller and have less decks.

Mister Condo replies:

R.B., without being able to review your governance documents, I really can’t offer you a specific answer here. Typically, common elements are handled by the association in accordance with how the governing documents dictate. If the item in question is not mentioned, in your case “decks”, then the repairs are handled the way all other repairs are handled, in common. If the documents call for the decks to be maintained by the unit owners, then it is their responsibility. Special Assessments have their own rules for how they are levied. Again, your documents specify the terms. Typically, an assessment is levied in proportion to the percentage of unit ownership formula but there are exceptions. My advice is for you to review your condo documents about common and limited common element repair and maintenance. I think you will find your answer there. All the best!

Condo Owner Suffers 9 Years Without Kitchen Hot Water!

K.D. from outside of Connecticut writes:

Dear Mister Condo,

I have no hot water pressure in my kitchen. It is a building problem for several units and is on the “to do” list. I have asked about getting a reduced HOA fee as I am not receiving the same amenities as other condo owners. This has gone on for 9 years!!! Whenever I bring it up they assure me it is the next priority. Can I put my HOA payments in an escrow account until the problem is fixed?

Mister Condo replies:

K.D., I am sorry for your problems and your Board’s ineffective management of the repair. No, you cannot withhold your common fees or the Board can foreclose on your unit for unpaid fees over time. What you can do is sue the association for not providing the hot water. Ultimately, that will get you the hot water, which is what you really want here. Saving money on the common fees doesn’t help. Hot water will fulfill your expectation of what the association is supposed to provide. 9 years is far too long to wait. Speak to an attorney and see what you can do to get a lawsuit against the Board in place. They will likely find it less expensive to get your hot water running than to defend against a suit. Good luck!