Tag Archives: Board

Special Assessment Surplus Not Returned to Unit Owners

J.P. from Boston writes:

Dear Mister Condo,

I am a unit owner and keep the books for a 12-unit, self-managed association in Boston, MA. At issue is disposition of a special assessment surplus. A vote was taken to “replace the roof”. Trustees then obtained bids, selected a contractor (no vote) and the special assessment amount was based on the possibility there would be a cost overrun of $10k (no vote). The trustees “said” any surplus would be refunded pro-rata. Now there IS a surplus and the trustees say they have changed their minds and are exercising their rights, as trustees, to use the surplus for other projects or save in reserve for future years. I and another unit owner are selling and want our pro-rata surplus share refunded. The master deed and bylaws are silent on a surplus situation, only on the right of trustees to impose special assessments for shortfalls. Help, the clock is ticking and this is worth $1,000 each my neighbor and I. Plus what feels like a violation of trustee rights.

Mister Condo replies:

J.P., I am sorry to have not been able to get to your question a bit sooner. I answer all questions on a “first come, first served” basis and I imagine you have already moved on from this unfortunate bit of business. Each state has their own laws about Special Assessments. I am neither an attorney nor an expert is Massachusetts Condo law so I can only offer you my friendly opinion. Special Assessments are a scourge upon condo and HOA living. They typically signify a lack of forethought about common element repair or replacement that should have been budgeted for years ago. Typically, they must be used for the specific intent of what they were levied for. In your case, the Assessment was used as planned but the surplus was not returned to unit owners, which is almost always the case. While the trustees had the best interest of the association in mind when they decided that the surplus should just be rolled over in to the association’s Reserve Fund, I am guessing they overstepped their rights and trampled upon yours in doing so. The question is what can you do about it? Since we are only talking about a thousand dollars, it may not be worth the time and investment of hiring an attorney to sue the association. You can certainly talk to an attorney who is verse in Massachusetts Condo law, but I am guessing they will tell you same thing that I am and that is you would likely have to spend more than a thousand dollars to try and recoup your thousand dollars. Whether to take on that battle is your choice but I think it might be a fool’s errand. Live and learn, my friend. You may have the moral high ground but they have your money. Let’s hope this doesn’t happen to you again. Good luck!

Can A Group of Condo Owners Lend Money to the Association?

G.H. from Middlesex County writes:

Dear Mister Condo,

Can an owner loan the association money?

We were in the midst of estimated $6k repairs to the exterior of the building when one of our Unit owners put their unit on the market. The contractor indicated the problem was more severe than they initially thought and advised us to contact insurance. Insurance sent an adjuster. Meanwhile, our unit owners got antsy and got a second contractor’s quote for $9k. Since we had $12k in the bank, the trustees agreed to proceed with the repairs figuring that if we got paid by insurance, great, if not we decided we would do a special assessment. The contractor removed some drywall from the interior of the “for sale” unit and wants to fix that and other areas in a phase 2 which he estimates at $6k. So, at this point we don’t have the money but the unit owners want the repairs made and have offered to loan the condo association money to just get it done now. Is there a way to do that? The repairs would likely need to be made down the road at any rate…

Mister Condo replies:

G.H., the association’s ability to borrow money from anyone – a bank, a group of owners, whatever, is defined in the condo’s governing documents. If the documents are silent on the subject (many are) then the Board needs to adopt a resolution that allows the association to borrow money. Further, the unit owners need to ratify that resolution with a vote that satisfied the requirement for amending the documents. Sometimes it requires more than a simple majority so take a look at your documents to determine if the Board has the authority to borrow money on behalf of the association. The next question becomes one of competitiveness and convenience. Let’s assume that the Board can borrow the money. Why would they go to a group of unit owners versus a bank? How much interest is involved? If it is such a low amount of money and a Special Assessment is planned any way, why not just levy the Special Assessment and be done with it? If the association can’t raise the money to pay back the unit owners, what then? Will they withhold their common fees until they are paid? Borrowing from unit owners may be convenient but it opens up the association to a lot of risk and a potential nightmare down the road. If it were me, I would simply issue the Special Assessment and be done with it. Also, the trustees getting antsy shouldn’t have triggered all of this confusion. They had already hired a contractor. Getting a second opinion after the fact may not have been such a good business practice. Is the first contractor suing the association for reneging on the contract? Then, you could end up paying twice for the work. Protecting the association from such liability is the primary role of the Board. Practicing good fiscal policy is equally important. I question some of the decisions they are making here and would suggest they would benefit from important Board Member training. “Condo Inc.”, offered by the local chapter of CAI, would be a great start. All the best!

Frequency of Condo Book Audit

L.L. from Litchfield County writes:

Dear Mister Condo,

How often should a condo complex’s books be audited? When they are audited, is the Board required to advise the owners that one has taken place and what the outcome was? Many thanks.

Mister Condo replies:

L.L., unless your condo documents require that the association conduct an annual or periodic audit, there is currently no legal requirement to have one performed in our state. That being said, many associations choose to have their records audited every three to five years or any time there is suspicion of funds gone missing. Larger associations are more vulnerable just because there is so much more money available to be pilfered. Many smaller associations will not take on the expense of having an outside CPA firm conduct an audit because there just enough money to be worth auditing. If the money coming in and the money going out look to be in good order, that is enough for most small and mid-sized associations. Larger associations almost always conduct annual or every other year audits because the cost of the audit far outweighs the risk of having a large amount of money stolen. One of the best people to ask is your Association Treasurer. In theory, this officer looks at the association’s cash on hand and savings and reconciles it with bank statements each month. They would be the first to see a problem. If money goes missing or the Treasurer suggest an audit, I would heed the call and get one done. There are several CPA firms here in Connecticut that specialize in auditing the books for condominiums and HOAs. I strongly recommend that use one of these firms with specific industry expertise to assist you in your audit. All the best!

Condo Board Members Vote by Email; Changes Vote After the Fact

D.L. from Fairfield County writes:

Dear Mister Condo,

Dear Mr. Condo – I am a unit owner in a 26-unit condominium. The Board of Directors voted unanimously via email to hire a contractor to perform emergency work due to the flooding of a unit by a renter.

Approximately two (2) days after the vote the Secretary notified the Management Company and the Board that she was changing her vote after speaking to the homeowner whose renter caused the water damage, as his contractor was the one not agreed to be hired.

As a result of the vote change, the President, one of only three (3) directors resigned and there are only two (2) directors (less than a quorum) remaining on the board.

I have the following three (3) questions:

1. Does the original internet vote stand?

2. The annual meeting is coming up on June 21st. Can that meeting take place without a quorum?

3. If the annual meeting cannot take place due to the lack of a quorum, what is the process by which the unit owners can call a meeting to elect a new board and adopt the annual budget?

Mister Condo replies:

D.L., Wow! You have a lot if issues at your condo, don’t you? If the internet vote was legal, meaning the association has allowed for the Board to vote by email, then the vote was valid. Unless your by-laws allow for Board members to change their vote after the fact (highly unlikely) then the vote should have stood, regardless of who resigned after the vote. That being said, there is the issue of practicality and what can actually be done now that the Board has fallen apart. The concept of quorum is an important one and you need to look at your governing documents and state law to determine when a quorum is achieved and what happens when the quorum is not achieved. Keep in mind that a quorum for an Annual Meeting is far different than a quorum for a Board meeting. As long as you achieve quorum at your Annual Meeting, you can simply elect new Board Members to fill the vacancies. With only 26 units, you have the added challenge of finding interested candidates. If quorum is not achieved, typically the previous year’s budget continues in place until next year’s Annual Meeting. The remaining Board members typically have the power to appoint directors to fill vacancies if warranted. If there is no quorum requirement for the Board, the existing members can serve out their terms and run for reelection when the time comes. Your question demonstrates some of the challenges faced by smaller associations. You have the same need for volunteers to serve on your Board but a much smaller pool of unit owners to choose from. I hope that you and few of your well-meaning neighbors will consider running for the Board at your next election. If it cannot wait until then, your condo documents very likely spell out the rules for calling a Special Meeting of Unit Owners. This is not that common but it can be done. My advice is to wait until your Annual Meeting and have a qualified and interested slate of candidates who will do a better job of running your association. Good luck!

Condo Board Allows Unit Owner to Custom Landscape

J.B. from outside of Connecticut writes:

Dear Mister Condo,

One of our residents asked for permission to build a berm of trees and shrubs behind his home to help block noise. I say that is a common area and that the entire community should vote on this. The board granted permission. Are they correct in so doing?

Mister Condo replies:

J.B., unless your documents specifically limit the Board’s authority on its management of the common grounds, the Board was likely within its right to grant the permission. If your documents do not allow for the Board to do what they did, then you are right. However, in my experience, the Board is very likely empowered to make this type of decision. Without seeing your condo documents, I’m afraid I can’t offer more of an opinion than that. Take a look at the documents. If you think the Board has overstepped their authority, call them on it. Other than that, the Board was elected by the owners to handle the business of the association. Sounds to me like they did just that. All the best!

Can the HOA File for Bankruptcy?

X.Y. from New Jersey writes:

Dear Mister Condo,

Can an HOA file for bankruptcy in NJ? If the HOA has debts that the HOA cannot pay and keep the property properly maintained and operating? Because of a loophole in the law, a homeowner sued the HOA and lost, but the expenses were sufficient to defend.

Mister Condo replies:

X.Y., it is very unusual for an established HOA to file for bankruptcy, especially without first having the courts appoint a receiver for the association. The receiver would likely levy special assessments against the unit owners to make good on the debts of the association. Since I am neither an attorney nor an expert in New Jersey law regarding common interest communities, I can’t offer an opinion as to the legality of the bankruptcy filing. My guess is that there is no difference between an HOA or any other business filing bankruptcy. However, as I stated at my opening, it would be truly unusual. If the HOA fails to maintain the property it could be sued by a disgruntled unit owner or owners or, in some truly decrepit state of repair, could face condemnation from local authorities. Even that wouldn’t cause a bankruptcy but could force owners out of their units, which might lead to eventual bankruptcy. I am sure there are underlying issues that have set the association on this path. I highly recommend you seek legal advice from qualified local legal counsel before thinking of such a drastic measure. My guess is you will be advised against it and seek another method of satisfying the debts of the association. Good luck!

Resigning Condo Board Members Creates Quorum Vacuum

D.L. from Fairfield County writes:

Dear Mister Condo,

I live in a 26-unit community. The Bylaws state that 5-people are elected to the board annually. The property manager called the annual meeting to be June 21st however, prior to setting the date, 3-board members resigned, leaving only 2-board members.

How can the property manager call a meeting with only 2-board members approving the date? Also, since there are only two (2) board members, how can the annual meeting take place when there is not a quorum?

Mister Condo replies:

D.L., resigning Board members create a challenge for any association. It puts the burden of maintaining and governing the association on the remaining Board members. Most condo documents allow for interim appointment of Board Members by the remaining Board members so that the association can continue to govern itself until the next scheduled elections. Your Annual Meeting should be open to all unit owners. The two remaining Board members should run the meeting, with one functioning as President of the Board until the elections are held at the Annual Meeting. In a small community like yours, there are only 21 unit owners left to consider for service on the Board, assuming the three that resigned are no longer interested in serving. With such a small pool of potential Board Members, it is quite possible that you will have a vacancy or two on the Board until volunteer leaders come forward. Your existing Board will suffice until then. The alternative is to have an ungoverned association with no authority to pay the bills or make decisions on behalf of the association. That could lead to a very expensive dissolution of the association or a possible court-appointed receiver to handle the business of the association. You don’t want that! My advice would be to encourage other unit owners to serve and for you to consider volunteering to serve to help get your community back on track for good governance. All the best!

Condo Board Makes Parking Rules That Favor Board Members!

S.D. from Fairfield County writes:

Dear Mister Condo,

Our board has set up three classes of owners with respect to parking. 1. Owner that have only one car and a one reserved parking space. 2. garage owners not permitted to used visitors parking at all. 3. Non-garage users with multiple cars that can park any number of cars in visitor’s spots. This third category benefits board members without garages and have multiple cars. A new rule was passed by the board that garage owner must park their car in their garage only and cannot use visitor’s spots at any time. But multiple car owners and park 4 cars in visitor’s spots. This of course harms all owners that have lost their visitor spots. What recourse do owners have to make these rules more equitable?

Mister Condo replies:

S.D., when a Board behaves in a manner contradictory to the wishes of the majority of unit owners, they are usually tossed out of office. This can be done at the Annual Meeting or, if enough people are upset with their decision on parking, via a recall. Or, if a majority of unit owners are OK with how the Board has divvied up the parking, things can continue as they are. The Board does control the parking lots and the rules for their use. However, the Board does not have unchecked authority. The authority ultimately lies with the unit owners and who they elect to represent them. Enforcing parking rules is one thing. Creating rules that favor the Board members is quite another. I would not hesitate to bring this possible abuse of power to as many of your neighbors as possible and start looking for new volunteers to serve on your Board. Good luck!

Condo Association Increases Late Fees and Adds Interest Penalties

C.C. from New Haven County writes:

Dear Mister Condo,

My Condo Association just sent notification that they are planning to increase late fees on HOA fees to $30 (25 to the association and 5 to the management company). They also plan to assess18% interest rate.

Can I apply both a late fee and an interest rate? Is that legal?

Mister Condo replies:

C.C., as long as the Board followed the rules for changing the assessment schedule and the interest on late fees, I don’t see why they can’t have both late fees and interest on late fees. The bottom line is that timely payment of common fees and assessments is critical to the association’s ability to pay its bills on behalf of all owners. Late fees and interest penalties are really the only tool available to the Board to encourage all unit owners to make their payments on time. Best of all, late fees and interest penalties are easy to avoid. Just make sure every unit owner pays their fees and assessments on time, which is exactly what they agreed to do when they purchased into the association. All the best!

Condo Board Closes Pools Versus Maintaining Them

T.K. from outside of Connecticut writes:

Dear Mister Condo,

We have 2 outdoor pools. For the past 2 years, 1 pool has been closed – no reason given. This year, none of the pools are opened. I was planning on attending the yearly board meeting that was to begin at 7 pm last evening. However, upon showing up for it we were told it wouldn’t be starting until 8 pm as they were “running late”. I have my own theory as to why they were delaying. What recourse do we have with regards to our pools not being opened and not being informed as to the situation? Our maintenance fees go up every single year without hesitation. Aren’t they liable to honor the dec’s & bylaws with regards to maintaining & operating the pools? So FED UP!

Mister Condo replies:

T.K., being fed up is a good start. Now, it is time to take action. I am sorry that you and your fellow unit owners are being denied full use of your amenities. Pools are a major amenity for many associations and you are correct that their care and maintenance is the responsibility of the Board. However, many associations fail to collect enough money in common fees to properly handle all of the fiscal responsibilities of the association. Even though as a unit owner, all you see is common fees that go up every year, that is no indication that enough money is being collected. Ultimately, associations need to have really good budgets and really good Reserve Studies adhered to in order to thrive. Would you be surprised if I told you that your common fees may need to rise 20 – 30% for that to happen? Would you support a Board that raised the common fees in order to meet the financial obligations of the association? The problem is that the Board is comprised of democratically elected unit owners who must run for election and reelection to serve their community. If they raise fees, they may not be returned to office as that is always an unpopular course of action. However, I can assure you, if the association ties their hands by not raising enough revenue to operate properly, you can expect your pools to remain closed. That is likely the tip of the iceberg. Are roofs being properly maintained? How about parking lots? How about walkways? Underfunded associations are easy to spot. The problems don’t all appear at once but they do surface. I would encourage you to have a candid conversation with your Board and fellow unit owners. If there is no money to make the repairs, you might want to be the one who suggest that common fees be raised. Without that extra capital to work with, I doubt much will change. Good luck!