Tag Archives: Financial

Condo Money Dries Up, Irrigation Sprinklers Turned Off!

G.O. from outside of Connecticut writes:

Dear Mister Condo,

My condo association decided to turn off the sprinklers because they went over budget with other maintenance. Now I am losing valuable plants that I’ve put in over the years. Can they do this?

Mister Condo replies:

G.O., I am sorry that you are losing your plants and I am sorry that your condo association has decided to save money be turning off the sprinkler irrigation system. As the democratically elected leaders of the association, the Board often finds itself in a difficult position when it comes to managing the association’s finances, especially when those finances are tight. I am guessing that the underlying problem here is common fees that are too low. There really isn’t any other reason that a maintenance project should cause a deficit to something as basic as operating a sprinkler system. The short answer is that, yes, they can make the decision. As a unit owner, you can petition the Board to rescind that decision but there may simply be no money to operate the sprinkler. Ideally, you will encourage them to raise the common fees so there is enough money in the budget for the Board to fulfill all of its duties and provide all of the services unit owners expect. Good luck!

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!

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!

Seasonal Condo Landlord Faces Pushback from Year-Round Owners

S.M. from outside of Connecticut writes:

Dear Mister Condo,

I bought a condo as a vacation home in Maine. There are five units. As I live in Massachusetts, and still work full-time, I am only able to use it intermittently in the summer, and then I rent it out November – May. There is another owner that rents hers year-round, and a third that comes intermittently in the summer and closes it up for the winter. That leaves two other units that are owner-occupied year-round. One of them is proposing that the non year-round owners pay an extra percentage or dollar on the monthly condo fees “for months when owners are not here to cover all the management/maintenance issues that fall to those who live here full time”. Can they do this? I would agree that the year-round owners are the ones who have to call the repairman, or may sweep up between cleaning lady visits, or admit inspectors to our units if required, but should they/can they be compensated through additional fees?

Mister Condo replies:

S.M., unless your governing documents allow for such a fee (unlikely), then the only way to add one would be to modify the documents. Since three of the five unit owners would likely vote against such a rule, it is unlikely to pass. That being said, there may be some validity to what the other year-round unit owners are asking and since it is such a small community, you might want to find an agreeable solution to keep peace and harmony in the community. Personally, I would argue that the year-round unit owners are benefitting by being the ones making the calls to repairmen and keeping their homes in good working order. If they need additional “sweeping up” between cleaning lady visits, perhaps it is time to schedule more cleaning lady visits, an expense shared by ALL unit owners, even those not there year-round to benefit directly from the additional cleaning. Other than that, I think they should review the governance documents and realize that the real estate purchase they made entitles them to the common services as outlined. Anything above that is an unreasonable expectation on their part. Good luck!

New Pet Rules Discriminate Against Condo Dog Owners

L.B. from outside of Connecticut writes:

Dear Mister Condo,

If condo bylaws permit a pet (no restriction on size) does the condo board have the right to impose a surcharge to pet owners (specifically dog owners). Our board voted to charge $20.00 per month per dog & new owners a one-time charge of $200 plus the $20.00 per month. Do they have the right to impose such charges? What about cat owners? Should they be charged as well. These charges seem discriminatory.

Mister Condo replies:

L.B., as long as the Board passed these rules in accordance with association governance powers, they have committed no foul. However, it is important to note that these individuals were voted into service by homeowners like you. If you and enough of your fellow homeowners feel the rules are unfair, simple replace the Board members with like-minded representatives of the people. If you can’t muster enough support for that, I don’t see why the rules should change. The sitting Board likely had their reasons for imposing these rules and, as long as they were adopted and passed correctly, they are the rules of the association. All the best!

FHA Not Satisfied with Condo Reserve Fund

T.S. from outside of Connecticut writes:

Dear Mister Condo,

I am having trouble getting this Condo approved for mortgage financing. I was told that if the current budget does not have a line item for the Reserve Fund, that would make the HOA ineligible. Can you give an example of a budget that shows a Reserve Account? Why is a savings account on a balance sheet not sufficient? The HOA is saying this is the Reserve Account. Please help.

Mister Condo replies:

T.S., when reviewing the condo’s eligibility to qualify for mortgages that are backed by the FHA, the lenders look to see that there is a Reserve Fund and that the association is making at least the minimum amount of annual contribution (Currently 10% of the budget). Local mortgage lenders typically require this stipulation because they want their mortgages insured or underwritten by the FHA. Typically, condominiums maintain FHA approval status as it makes it easier for units to be bought and financed by owners seeking FHA-backed finance options. However, there is no legal requirement that forces the condominium to comply or even maintain FHA approval status, leaving mortgage seekers like you in the lurch. There are mortgage companies that specialize in dealing with FHA approvals and this association might be well served by working with one to achieve FHA approval, making it possible for mortgage seekers such as yourself with better access and option when it comes time to take a mortgage on one of the condo units within their association. It isn’t as simple as having the association claim an association-owned saving account is the Reserve Fund. Good luck!

Bank Still Owns Condo Parking Spaces

Z.A. from Illinois writes:

Dear Mister Condo,

I live in Cook County Illinois. I am currently the President of our Board. The parking spaces in our building are deeded, and 24/26 spaces are currently owned by Unit Owners. However, the Developer was unable to sell all of the garage spaces, even though he already sold all the Units. The bank just foreclosed on the remaining two garage spaces and has stated that they will try to sell the garage spaces to someone outside our building. We would like to create a rule that requires the sale, exchange, or leasing of any garage space must be to a Unit Owner, and not to anyone outside our building. Would you recommend we do this with a simple Rule/Regulation, or do we need to amend our Declaration for this? Thanks in advance.

Mister Condo replies:

Z.A., I am not sure you can do this at all! Since I am neither an attorney nor an expert in Illinois condo law, I need to refer you to someone who can help. There are various stages of a condo. Developer Transition sounds like the one you are in right now. If the bank owns the land, you may not have the jurisdiction to make a rule over their land. You may need to purchase the land from the bank before making any rules about how the spaces will be used. Frankly, I am surprised one or more of the 24 existing unit owners hasn’t pounced on the available spaces seeing as parking is at such a premium in your region. I would recommend that the association consider purchasing the spaces from the bank and speak with your association attorney about what to do with them. My guess is they will provide income for the association over time. Good luck!

How Does the Condo Know How Much to Keep in Reserves?

B.B. from outside of Connecticut writes:

Dear Mister Condo,

What is a good process to determine the amount to be kept in reserves and set assessments?

Mister Condo replies:

B.B., there is only one tried and tested process to determine the amount to be kept in Reserves and set assessments and that is the implementation and adherence to a Reserve Study. There are many companies that specialize in this service but associations that wish to save money and have the confidence they can do it right can even do it themselves. The concept is simple. The minute the first common element is added to the association, it begins to age and decay. Some go quickly, some take decades, they will all need to be replaced and have a known useful life. The Reserve Study looks at the cost of the common elements and uses a formula to determine the likely cost at the age of replacement. Obviously, it cannot be an exact number but I think you will find these studies, when performed properly, are surprisingly accurate. Once the study is performed, a funding plan is put in place. As long as the funding plan is adhered to, there should always be enough money in the Reserve fund to handle these known upcoming expenses as they come do. Additionally, the association benefits from accruing interest on these funds which tend to help offset inflation. I wish you and your association the wisdom of Solomon in determining and adhering to your Reserve Study findings. Good luck!

No Formal Condo Association Leads to Informal Roof Problem

M.L. from outside of Connecticut writes:

Dear Mister Condo,

I own a condo in a converted 1860-era house. I have the first floor and upstairs neighbor has 2nd and 3rd. We don’t have a formal association. We just split shared expenses 60/40 (I’m 40). It has worked fine but now there is an issue. We desperately need a new roof. But they keep stalling and finally have come clean that they don’t have the money. What recourse do I have?

Mister Condo replies:

M.L., if you have a condo agreement as part of your purchase agreement, you have a formal association. You and your fellow owner just haven’t been following it, which is fairly common in your two-unit condo. You are about to learn first-hand what happens when one of the unit owners doesn’t have the money for the needed repair and it isn’t pretty. The short-term answer is that unless these folks agree to pony up the money for the new roof, you’re not going to get a new roof. The long-term solution is that you will likely need to sue in order to get them to pay. Since they aren’t likely to do that, they may need to look into other options like mortgaging (unlikely) or selling (ideal). This could take years and you still won’t have a new roof until a new buyer is found who is willing to not only buy their portion of the condo but also pony up 60% of the expense of a new roof. One other option you may have is for you to pay for the new roof and hit them up with a lien for their portion of the roof. You will need an attorney to draw up the papers, which will have to be in compliance with your condo’s governing documents as well. As you can see, this is a most unfortunate event for all involved. There is one other option I didn’t mention and that is for you to sell and make this someone else’s problem. I don’t know if that is an option for you but I wouldn’t hesitate for a minute to get out of this potential money pit if given the opportunity. All the best!