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!

Leave a Reply

Your email address will not be published. Required fields are marked *