Distress for Condo Manager In a Distressed Association

A.R. from New Jersey writes:

Dear Mister Condo,

Hi, thanks for taking my question. I have been managing a 20-unit condo building in NJ for last 3 years as a property manager. When I took over, almost every unit owner was behind on their common charges, and things are getting worse ever since. Almost 80% of people have not paid for more than a year. I am at the point that I want to resign but no one wants to take over. Board members are also behind on their payments. What should I do under these circumstances? Board members do not respond back to me. Any suggestions?

Mister Condo replies:

A.R., thank you for writing. I guess my first question for you is: are you getting paid? How can a 20-unit condo association without a reliable income stream afford the services of a professional property manager? This is one of those scenarios where I sit here and literally shake my head.

First and foremost is to recognize that this problem is that of the condominium and not yours. That being said, it will become your problem when vendors, including yourself, don’t get paid by this association because the money just won’t be there at some point. Be extremely careful when negotiating contracts for service with outside vendors for this association. You don’t want your signature on any contract where the association is likely to default as you could find your management company, or worse, you on the receiving end of a lawsuit seeking payment.

My advice to you is to get this association help in the form of education. The Board needs to learn how to govern and the unit owners need to accept their responsibility for timely payment of common fees. It is just a matter of time before this house of cards tumbles and when it does, the association will likely be court-ordered into a receivership situation where an appointed receiver will function as the Board should have and begin earnest collection efforts against the unit owners. My guess is that many will not be able to pay their delinquent fees and the receiver will then begin foreclosure proceedings against those that cannot pay. It will get quite ugly quite quickly as units go up for auction and the prices are driven low. The end result may be a fully liquidated association.

If this association takes corrective steps now, they may be able to avoid this scenario. The Board needs to begin collecting delinquent common fees right now, including the fees for which many of them are delinquent. I have no doubt that the condo’s governing documents require Board members to be in good standing with the association to be eligible to serve. It is also time that the Board enforce such rules against themselves, dismissing delinquent unit owners from Board service.

Your question to me is what should you do under these circumstances? I guess that is up to you. Do you think this association can turn itself around? Are you willing to ride this train without a conductor while they do? Is the management fee on 20 units worth the potential risk? Not in my opinion. I would sever my relationship with this community as soon as my contract was up. The community is on the road to failure and has been for some time from what you have told me. If I were a community association management professional I wouldn’t want my name associated with such an association. There are better associations out there to manage. This one will take you down with it when it fails. Good luck!