B.S. from Lee County, Florida writes:
Dear Mister Condo,
Is my condo association allowed to carry $19,000 of debt due to shortfall in the roof reserves instead of an assessment?
Mister Condo replies:
B.S., I am sorry that your association is carrying debt. Ideally, the Reserve Fund would have been better funded but that apparently wasn’t the case. The next ideal situation would be for the association to levy a Special Assessment to cover the shortfall. Technically, that is what they are supposed to do. However, I have seen some “creative” accounting that allows the association to move funds in such a way that the debt is effectively “carried” to the next year and funded with Reserve Fund contributions or a common fee increase. The bottom line is that the unit owners will pay one way or the other. The problem with “carrying” the debt is that owners change when units are bought and sold. An unsuspecting buyer quickly finds out that they are paying for debts of the previous owners and that can lead to lawsuits against the previous owners and/or the association. While the Board may have found a way to “carry” the debt, they had best be sure that their accounting techniques cannot be questioned by new owners. If that is the case, they may be able to “carry” the debt. If not, the “carried” debt could cost a lot more than the “savings” of deferring the debt. At the end of the day, the Board is elected to conduct the business of the association. If unit owners are unhappy with the Board’s performance they should vote them out. Short of that, the Board is pretty much free to conduct business as it sees fit. Good luck!
Carrying debt should be avoided. The people who are benefiting from this capital improvement project should be the ones paying for it. There is also the issue of the cost of servicing this debt. The most prudent thing to do would be making a special assessment and putting this behind you. Something else will always turn up.
That amount is pretty small. I think in my opinion it looks better to keep fees lower. Future purchasers into the complex will look at common charges as well