Tag Archives: Financial

This Condo Has it All! Renters, Roaches, Broken Trash Chutes…

S.M. from Miami writes:

Dear Mister Condo,

I live in a condo in Miami and we have the most incompetent Board. The building is self-managed and we currently are under a lot of problems, like roach infestation, water leaks, building trash chute compartment broken and trash coming out of the compartment. The building runs more like an AirBnB. The rental ratio is at 61% and we have no support since there’s so many investors. Please advise, I have approached the Florida Department but they don’t intervene in situations like this.

Mister Condo replies:

S.M., it sounds like your association has really gotten away from what unit owners like you were expecting. Whether the Board is incompetent or not, without rental caps (the percentage of units allowed to be rented at any given time), I am not surprised to hear of so many rental units being used in AirBnB fashion. First things first. The Association is governed by volunteer leaders elected by the membership. If these leaders aren’t making sure that the problems are being addressed (water leaks, roaches, broken trash chutes) then it is time to elect new leaders. You may be able to bring suit against the association for not maintaining itself but that can be costly and still not yield any real results. If it were me, I would consider running for the Board myself on a platform of restoring the association to good working order. If that seems unreasonable, I would consider selling. It seems there is no shortage of investors looking to purchase into this association. I would look carefully at the next association I purchased into. Hopefully, the percentage of investment units would be far lower and the Board would do a better job of maintaining the common elements. Good luck!

Leaking Toilet Causes Condo Water Bill to Triple!

J.C. from outside of Connecticut writes:

Dear Mister Condo,

Our condo association consists of 12 units that share a common water meter. Earlier this year we noticed that our water bill had suddenly more than tripled, and an inspection of each unit by the board determined that the cause was a constantly running toilet in one of the units (the continually-spinning water meter usage indicator stopped on a dime the moment that the water supply to that toilet was turned off; the toilet was fixed and our water bills subsequently returned to normal). Based on a review of our prior water usage history, we estimated that approximately 200,000 gallons of water was wasted at an excess cost of $1,500, from the time the toilet began running until it was repaired. Our board proposed a 50/50 split of this added expense with the unit owner of the broken toilet (the unit was occupied at the time by college students who likely never reported the toilet problem to their landlord), to which the unit owner tersely replied: “Not going to happen.” Is the condo association within its rights to demand that the unit owner cough up an additional $750 beyond regular monthly assessments to cover half of the excess water charged caused by the constantly running toilet in their unit?

Mister Condo replies:

J.C., the answer is “it depends” but most likely “no”. What it depends upon is the wording of the governance documents. If water is supplied as part of the common fees and there is no verbiage assessing penalties or expense to individual unit owners for excess water usage then the unit owner was right to refuse the charges. Also, there is an issue of documentation. Since your water is all supplied on one meter, you cannot say with any accuracy that all of the excess water was used by this one unit. Maybe another unit owner turned on a faucet and let it run during the same period of time. How would you know? How could you prove all of this water was consumed by this particular unit owner? It is unfortunate that the association has incurred this additional expense. However, the only way to prevent such an issue in the future is to submeter each unit’s water consumption (involving an expense of submeters) and also revising your documents to read that each owner is responsible for his/her water consumption. The local water company would bill the association and the association would then bill the individual unit owners. Short of that, the unit owner is correct in denying the charge. Good luck!

Condo Owners Reluctant to Pay Proper Common Fees

K.I. from New Haven County writes:

Dear Mister Condo,

I serve as board president for a small association. The Treasurer and I are the only unit owners who have any interest in serving in more than name only. Despite our best efforts, we can only seem to get the unit reps together annually to discuss business. For the past few years he and I have been warning everyone that due to inflation, our expenses are surpassing our income. We have tried raising monthly dues, but according to our by-law, raising dues and levying of non-emergency assessments must be passed by majority, so we’ve been unsuccessful. Because of this, we have been unable to allocate funds to do upkeep. The unit that is the most vocal about status quo reported a water stain that will certainly lead to a leak. The treasurer and I would very much like to address this…but we don’t have the money because we’re being out-voted on raising dues and budgeting future assessments into them. Once there IS a leak we can say this is an emergency assessment and levy it, but the unit that reported it is threatening legal action against us for not maintaining the building unless we fix it post-haste. Because we are a small association, we have been unable to find a property manager that will take us on or that we can afford, so we don’t have access to a lawyer. We’ve called around, but have been unable to find a lawyer that will even see us for a consultation! Any advice?

Mister Condo replies:

K.I., I am sorry for your situation. Unfortunately, you are seeing the direct results of what happens when unit owners’ apathy reaches a dangerous level. There are some things you can do but you will likely get pushback from unit owners and even the uninterested Board Members. A lawsuit from an upset unit owner will get their attention despite your best efforts to avoid that scenario. The emergency repair will also cause the immediate problem to be fixed but will not solve the long-term issue of inadequate Reserve Funds and even general maintenance funds. The reality of the situation is that your common fees should probably be at least twice what they are right now but, as you know, unit owners will fight you tooth and nail if you raise the fees that much. Having money for a property manager and an attorney are all part of collecting adequate common fees. Until the fees are raised, the problems will persist. If it were me, I’d hit the road while the units still have some value. If you wish to stay and fight, you can cite governance and legal (Connecticut State Law) requirements to adequately collect Reserves as part of the monthly common fees. It will take years to correct but with diligence, I do believe you can turn the association around. The alternative is catastrophic financial failure, which will lead to the association going under and owner losing their homes. I hope it doesn’t come to that. Good luck!

Streamlined FHA Rules and Condo Ownership Requirements

M.W. from Tolland County writes:

Dear Mister Condo,

With regards to the condominium approval process for FHA, I have heard that since HB 3700 was passed. My understanding is that the changes would streamline the application process (possibly extend approval periods), increase investor owned units from 50% to 65% and ease restrictions related to transfer fees. Are you aware of the status?

Mister Condo replies:

M.W., I am neither an FHA expert or a great source for the latest news on FHA. However, I can tell you the full text of this bill is available online at https://www.congress.gov/bill/114th-congress/house-bill/3700/text. Section 301 deals with insurance requirements for FHA. Here are some highlights:

Requirements for Mortgages for Condominiums

(1) Project recertification requirements.—Notwithstanding any other law, regulation, or guideline of the Secretary, including chapter 2.4 of the Condominium Project Approval and Processing Guide of the FHA, the Secretary shall streamline the project certification requirements that are applicable to the insurance under this section for mortgages for condominium projects so that recertifications are substantially less burdensome than certifications. The Secretary shall consider lengthening the time between certifications for approved properties, and allowing updating of information rather than resubmission…

(i) 35 percent requirement.–In order for a condominium project to be acceptable to the Secretary for insurance under this section, at least 35 percent of all family units (including units not covered by FHA-insured mortgages) must be occupied by the owners as a principal residence or a secondary residence (as such terms are defined by the Secretary), or must have been sold to owners who intend to meet such occupancy requirement…

To my eye, M.W., it looks like you are correct on both counts. Of course, with legal matters such as FHA, I always refer condo folks to the experts. In Connecticut, check out https://www.caict.org/page/Directory#FHAfor a list of FHA condo financing experts. All the best!

Unusual Items Paid for by Condo’s Reserve Fund

E.I. from writes:

Dear Mister Condo,

Are Condominium Associations permitted to use Reserve Funds to purchase and install items within units such as intercoms or programmable thermostats. Are these items considered common or non-common items? Each unit receives their own separate electricity bill for which they are responsible for. Would this be different for the purchase of low-flow shower heads where the water bill is paid for by the association and thus receives the savings?

Mister Condo replies:

E.I., just about any common element owned by the Association is eligible for Reserve Fund funding. Each and every asset of the association comes with a cost and a repair or replacement estimate. If the intercoms, thermostats, and low-flow shower heads are owned by the association, then they are common elements (limited or otherwise) and can be included in the list of Reserve Fund items. However, if these items are not owned by the association then the association should not be paying for them, Reserve Fund or otherwise. The bottom line is who owns the asset. As long as it is the association, it is their responsibility. Putting money away today for tomorrow’s repairs and replacements is exactly what the Reserve Fund is for. All the best!

Who Pays to Repair Condo Vandalism?

M.N. from outside of Connecticut writes:

Dear Mister Condo,

I serve on the board and had my property vandalized who’s responsible, me or the Condo?

Mister Condo replies:

M.N., I am sorry you had your property vandalized. Regardless of your position on the Board, if a crime has been committed against your own personal property, it would typically be your responsibility to repair it and, hopefully, your insurance would cover the damage. If association property were damaged, then it is the association’s responsibility to repair the damage. Whatever the damage, I hope you contacted the police. Vandalism is a crime. The Board isn’t the Police Department. The Board governs and enforces the covenants of the association; the local police handle criminal matters. Good luck!

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!

Can the HOA Restrict the Number of Rental Units?

S.P. from New Haven County writes:

Dear Mister Condo,

Can the HOA restrict the number of rental units in a complex?

Mister Condo replies:

S.P., yes! Although they cannot do so randomly or without following the rules for making rules that would limit the number of rentals. Rental caps are quite common in condominium association or lots of reasons. What do your governing document say? Often, there is a limitation right there. If not, what is the limit? Many associations find they cannot get FHA financing for their unit owners if more than a certain percentage of units are rented, hence, the rental cap. What they can’t do is change the rental cap while you are currently renting your unit, forcing you to evict your tenant. However, they could prevent you from renting the unit again until the percentage requirements are met. In that case, they start a rental list that allows you to rent when the availability for rentals will not exceed the rental cap. If you have further questions, you should consult with a local real estate attorney who can offer you proper legal advice on the matter. Good luck!

Delinquent Owner Causing Big Mess at 3-Unit Condo

S.B. from outside of Connecticut writes:

Dear Mister Condo,

I live in a 3-unit condo that was converted from a single-family home 2 decades ago. When I closed on my condo, I was required to give the HOA a sum of money to cover my share of an estimated driveway repaving that was planned in a year (I have this in writing in my P&S and the closing papers). Before that could happen, and almost right after I moved in, the roof sprung a leak. Being tapped out on my recent purchase, I told the Trustee they could use half the money I put in for the driveway and I would pay half out of pocket for my share for the roof; when time came for the driveway in the next year, I would pay the difference. As it turned out, my half share of the roof and the whole share of the driveway amounted almost perfectly to what I put in at Closing. Now that it’s time, I’ve been asked to pay the whole amount of my share for the driveway out of pocket. The Trustee is saying she used the rest of my sum to cover a unit that couldn’t pay for the roof (they’re on a payment plan but it’s going to take them 2 years to pay the HOA back!). I asked if I would be reimbursed and was told no. I’m arguing that I was assessed at Closing and paid my share. She’s arguing that once the money went into the HOA reserves it became common funds for her to use as she saw fit. Can she really make me pay twice and not reimburse me given that the offending unit is paying back the funds albeit slowly?

Mister Condo replies:

S.B., ouch! Small condos like yours can have some mighty big problems when unit owners don’t have the money to sustain maintenance and repair items equally and as outlined in the governance documents. You may very well have the right to sue your association to get your money back but the real question is one of value. Would it be worth it? Probably not. As the funds from the delinquent unit owner come in, the association is made whole. In theory, that would be the time for you to pay for your driveway as originally agreed, less the money you already paid for the driveway. Your trustee is wrong in assuming that any money put in the Reserve Fund can be used at the Trustee’s discretion. However, to enforce your rights as a unit owner, you will have to sue. Again, it is a question of value. In a small association like yours there is rarely any tangible amount of money in the coiffeurs to make a lawsuit worthwhile. It is in everyone’s best interest that you get along. Play nice and ask for fairness. If you can’t get the trustee to play nice, consider selling. It would likely be easier in the long run than doling out good money on a lawsuit that may not yield any money to you at the end. It’s your choice. Good luck!

Condo Documents Dictate Double Late Fees and Fines

I.G. from Middlesex County writes:

Dear Mister Condo,

Our By-Laws stipulate a late fee of interest plus prime rate if a payment is 30 days past due. The Rules and Regulations stipulate a $100 fee after 15 Days. Which prevails? One or both?

Mister Condo replies:

I.G., hopefully, every unit owner pays on time and you don’t have to implement late fees. It is not uncommon for governing documents to have conflicting terms. It is up to the Board to correct the documents and implement a proper late fee policy. Since one dictates a fee after 15 days and the other dictates a fee after 30 days, you could make the argument for both being applicable. However, it would make more sense to have just one fee and a detailed collection strategy for what happens at 30 days and what happens at 60 days, with 60 days being the time the matter is turned over to the association’s collection agent or attorney. I hope you never need to do that. Good luck!