This is a cautionary tale for condo residents who naturally find themselves too busy to get involved with their condominium association. Things can go haywire when no one is at the wheel, and this affects the residents’ ability to sell their homes!
Your Guide’s example involves an association that at first glance appears spectacularly well run. The developer’s children live in the building. The property has a management company that does a great job on day-to-day activities. The landscaping is in great shape, the hallways and lobby are always clean. Maintenance is regularly performed. This is all well and good!
The well manicured and maintained exterior hides a secret, however, which caused two buyers to bolt from their contracts.
Sometime in 2009, the elected condo board president moved away, and naturally resigned his position as president. The treasurer at the time began filling in the president’s duties, but did not actively manage the board.
His lack of attention resulted in the board having no meetings in 2010! The building continued to run, and the treasurer (acting president) made sure that bills were paid and maintenance continued without interruption, and the other busy residents went on with their busy lives.
The problem came about during condominium document review: The declarations for most condo buildings require a minimum number of meetings per year. In our example, at least four. But this association had none. This is a glaring omission when lawyers and cautious buyers are looking over these documents to verify that the association is a well-run association.
When interviewed by the buyers, the treasurer (acting president) not being fully aware of the consequences, said that the building basically functioned during 2010 “without a board.” An awful thing to say in any situation, but in our story it made the situation ever so much worse as the buyers were already leery because the documentation of the financial health of the association was already suspect. In fact, our association did NOT function in 2010 without a board. It just functioned minimally with one board member absent.
It is perfectly legal and acceptable for a board to run with a position vacant for a period of time. This happens all the time as residents move for many reasons. Boards have the discretion to fill a vacant position by appointing a replacement, or by continuing to serve with a member short – often at their own discretion.
Of course in our example, other residents could not be bothered to offer their time to volunteer to fill in on the board, leaving our poor treasurer to muddle along as best he could.
The final blow came when we discovered that our association only had one-third as much money in its reserve account as our homeowners originally thought! The last time our owners looked at their financial statements it appeared that the association had as much as $45,000 in reserves. In reality, the reserves had been depleted to $16,000.
In our example, since none of the members of the association were involved in running the association, expenses had increased but assessments had not been increased to cover expenses, and the management company had slowly spent the associations savings. This meant that the association will need to increase assessments as well as possibly enact a special assessment to replenish the reserves.
This was too much bad news for our prospective buyers to bear, and they decided to cancel their contracts.
Better to rent
In some instances, for busy residents that do not have the time to be involved in the operation of their building, it may be a better idea to rent rather than own. In fact, condominium expert Mark Pearlstein often chastises residents of buildings that do not have active condo boards that ultimately these buildings could revert to apartment ownership rather than condominium. It’s a drastic step, but Mark can be dramatic.