Tag Archives: Financial

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!

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!

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!

No Common Fees Collected on Condo Unit for Six Years!

J.D. from New York writes:

Dear Mister Condo,

In New York, is there a statute of limitations applicable to a condominium where the entity claiming to be the holdover of the mortgage note has three times, without success, sought to hold a public sale? Now, more than six years have passed since the last payment was made (to a bank no longer in existence, having been absorbed into another bank, which – in turn – was merged by the federal government into the entity which has unsuccessfully thrice attempted a public sale). If such statute of limitations exists – would it be found in the CPLR, GOL, or some other statute, rule or regulation?

Mister Condo replies:

J.D., I can only hope this association has had some legal guidance from a qualified attorney during this lengthy period. I am not an attorney so I cannot offer any legal advice in this column. I am not sure how an entity can claim to be a mortgage note holder without providing some type of documentation. The Civil Practice Laws and Rules (CPLR) and General Obligation Law (GOL) may be a great place to start but I would also suggest that the association has a lien on the property enforced by the New York Condominium Act and that whoever owns the unit is liable for the back common fees as provided in the law. An attorney may have also advised that the association foreclose on the unit for unpaid fees due to the association. Clearly, this unit needs to be liquidated one way or another and the association needs to have a dues-paying unit owner using the unit as soon as possible. That may mean taking a write-off but it should get things back on track. Consult with a locally qualified attorney to see what your options are. All the best!

Required Condo Reserve Study in Ohio?

R.D. from Ohio writes:

Dear Mister Condo,

 

In Ohio, can a condo owner act as Associate Treasurer and must there be a Reserve Study of the Association Made?

 

Mister Condo replies:

R.D., I am not an attorney so I cannot speak to specific laws in your state. You can see a graph prepared by the Community Associations Institute (CAI) of what states require Reserve Studies by Statute here. Ohio isn’t listed as a state that does. Additionally, I am not aware of any law that requires Ohio condominiums to conduct Reserve Studies. That being said, many association have rules in their by-laws that require the association to perform routing and preventative maintenance as well as keep the common elements in good working order. A Reserve Study is the perfect tool to keep the association on track financially as the years go by, the elements wear down, and the Reserve Fund is used to replace those worn elements. As for the role of any unit owner to serve as Associate Treasurer or in any other capacity on your Board, you should refer to your governing documents. Typically, Board members are elected from unit owners within the community. I am assuming that the person in question is serving either as a Board Member or as an Appointee of the Board to function as Associate Treasurer. To be honest, I am not that familiar with the title Associate Treasurer. I am assuming that is someone who assists the Treasurer? Do they have the ability to write checks for the Association? If so, the person should be vetted the same way the Treasurer or anyone else is who access to the Association’s funds. Dual signatures, routine audits, etc. should all be part of the Best Practices followed by the association. Best Wishes!

Condo Deck Spalling Project Creates Additional Unit Owner Expense

M.M. from outside of Connecticut writes:

Dear Mister Condo,

If the condo HOA has contracted with a firm, using funds from an assessment, to do spalling on your deck, is the condo owner responsible for paying for tile removal and replacement and also a sliding glass door replacement they say needs to be removed to do the spalling?

Mister Condo replies:

M.M., that is a tricky question. My gut instinct is to say that the unit owner is responsible for those items that the unit owner owns and the association is responsible for any common elements that it owns. In the case of a deck and spalling, my question is who owns the tiles? Are they your tiles (installed by you or a previous owner)? If so, it is likely that you own the tiles and would have to pay for the replacement. Who owns the slider? Again, that is typically unit owner responsibility but your documents may state otherwise. My best advice is for you to review your documents and see who owns what. If the documents are silent on the subject, you might ask neighbors who have faced a similar situation how it was handled previously. My best guess is that you will be responsible for the tiles and the slider. On the upside, you will have beautiful new deck spalling, tiles and a slider to come and go to enjoy your deck. All the best!

Condo Insurance Check Issued to Unit Owner for Building Damage

S.F. from Fairfield County writes:

Dear Mister Condo,

Insurance check for house damage was made payable to a condo owner, who is the brother of the president of the condo association. Why did the insurance company allow this? Check amount was substantial, for several thousand dollars.

Mister Condo replies:

S.F., there are a few reasons that the condo owner was reimbursed directly for an insurance claim. For starters, the policy holder typically designates the payee. Was this entirely association-owned insurance or was it homeowner’s insurance as well? Typically, the homeowner gets paid for claims made against their own policy. If the damage had already been repaired by the homeowner, the check may have been for reimbursement. A typical association claim for exterior building damage would go to the association, who would then hire the contractor to repair the exterior building damage. It the damage were internal (water damage for instance) and the association’s insurance were covering that damage, it would not be uncommon for the payment to go directly to the homeowner.

Keep in mind that insurance claims are also records of the association. As such, you have the right to inspect the claim. If you think foul play is afoot, I would suggest you review the paperwork to determine why the payment went to the owner and not the association. Good luck!

Responsibility for Condo Construction Defect 30 Years After Developer Control

P.Z. from outside of Connecticut writes:

Dear Mister Condo,

During window and door replacement in my condo, built in 1988, it was discovered that there was about 18″ of insulation missing from the walls directly above the windows. It was corrected during the install of the windows. Is the association responsible to compensate me for the expense of properly insulating the space above the doors and windows? The property manager says no, but I think otherwise. What’s your take, please?

Mister Condo replies:

P.Z., in a perfect world, the missing insulation would have been the responsibility of the builder and would have been considered a building defect if uncovered back in 1988. However, that is impractical, if not impossible. In theory, the association takes over after the developer is through (the developer transition period) and assumes full responsibility for all of the common elements. The question now is whether or not the insulation is considered a common element or part of the window. I agree with you and would argue it is a common element where a building defect has been found. However, the association is likely to argue that they are not under any obligation to pay for a hidden item like this because they had no way of knowing there was an underlying defect and they have no recourse with the developer at this late date. That brings us to the practical element of this repair. I can’t imagine it was very expensive. Do you really want to complicate matters by suing the association for the repair? If the dollars justify a lawsuit and/or you feel strongly on this matter, you should speak to a locally qualified attorney to see if you have a case, or you may bring the matter to Small Claims court depending on the dollar amount. If it was $500 or less to insulate the area around the window, I think I would just pay it and move on. The culprit was the developer back in 1988. He made a mistake and was never held accountable for it during the time when he could have been. All the best!

Purchase of Lien and Foreclosure Rights on Delinquent Condo Owner

S.A. from South Florida writes:

Dear Mister Condo,

Can an individual purchase the lien and foreclosure rights on a delinquent condo unit? Second, is there a situation where a condo association can foreclose and take possession without going through the auction process? The unit in question has no mortgage and the owners have abandoned the unit. Sorry, one more question, is it the responsibility of the Association to keep the electric on if the unit is abandoned, to protect the neighbors from mold. This is a South Florida condo association.

Mister Condo replies:

S.A., those are all great questions. As you know I am not an attorney and offer no legal advice in this column. You should likely check with one of the many fine community association law forms in your state before taking any actions listed in your question. Let me offer the following friendly advice. Delinquent condo owners, even those who abandon their units have rights, both from the association’s governing documents and state law. If the unit owner is amenable to any of the methods of disposal for their unit as you have outlined, I can’t imagine there being a problem. However, it doesn’t sound like the unit owners are even around to agree with any proposed disposal of their unit. This is where the lawsuits typically begin and the process of foreclosure gets under way. Typically, a unit owner would offer a defense to the action of foreclosure. However, if the legal papers are served and they choose to simply ignore them, the process continues. If the association follows the law, there should be no problem. As far as an individual purchasing the lien and foreclosure rights in order to take possession of the unit, I would personally have a problem with that. The association is the aggrieved party. They should be the recipients of the proceeds from proper resolution of this matter. However, I am not aware of any law that forbids this. Once again, I would suggest speaking with the association attorney about the legality and proper filings. If the attorney says “yes” and you have a willing and able buyer, I would think it would expedite the process and save the association a good bit of time and money. They key to either of these transactions is making sure the association doesn’t violate any of the unit owner’s rights. Otherwise, multiple lawsuits could ensue. Please check with the association attorney before taking any action.

As for the electric that the association needs to decide whether or not to keep on, my guess is that they should be able to charge back the cost of any electric to the unit and make it part of the lien. Again, the expense of the electric service likely outweighs the potential damage that could be caused by mild so the best business judgment rule should allow the association to make that decision. Even if they can’t collect on the electric cost, that amount should be paltry in the overall scheme of things. All the best!