Posts Tagged ‘condominium trustees’

Having Trouble with Unit Owners in Massachusetts who are behind in their Monthly Common Area Fees?–There is a Simple Way Out, and We can Help

Friday, July 2nd, 2010

The current economic slowdown has hit people’s pocketbooks across the board. People are behind on their mortgage payments, and people are behind on their taxes, and people are behind on their monthly common area fees.

Lenders are dragging their feet on starting, and completing, foreclosures. Their data may indicate that things are slowly getting better, and if they can hold on a little, they will start to get higher prices at auction. In my opinion, this is the reason that approval of shirt sales has slowed to a trickle.

The procedures for tax sales in Massachusetts are cumbrous, and many short-staffed municipalities just do not have the person-power or the resources, to engage in a wholesale campaign to collect overdue taxes. There are political and social ramifications involved in tax sales, as well, so that the area of tax collection for overdue payments seems to be meandering along, at best.

Delinquent common area fees in Massachusetts, howvever, are a much different story. They can be collected, rather inexpensively, even if the Unit Owner is in the throes of a foreclosure. The reason for this is a 1995 change in the Massachusetts Condominium Statute, which permits unpaid common area fees to be classified as a “super lien”, so that an execution-type sale for same can remove mortgagee entirely as secured creditors.

The procedure is simple. A letter is sent to the Unit Owner demanding payment. If this is ignored, a letter is sent to the mortgage lender(s) explaining that if the arrearage is not paid, including late fees and accrued attorney fees, the condominium will hold an execution sale and sell the Unit, free of the mortgage(s) on the property. It is amazing to me how quickly Lenders respond when they are apprised of these facts.

The best part of the “super lien” process is that it costs the Condominium virtually no money. Most law firms who are knowledgeable in this area (mine included) will take on an engagement like this without even asking for a retainer for out of pocket expenses. The reason for this is that all legal fees and expenses will be paid by the Lender when they realize the consequences of inaction and settle the “super lien” with the Condominium.

If you live in a Massachusetts condominium, or have clients or customers who do, please forward this post to them.  As I have indicated, this “super lien” approach has even worked for condominiums we have represented when the Unit in question is in foreclosure status.

Massachusetts Condominiums Should have Websites–It outta be the Law

Wednesday, June 30th, 2010

Condominiums in Boston, Massachusetts and surrounding towns come in all shapes and sizes. There are a plethora of 2 and 3 Unit condominiums, former personal properties where the owner usually lived in one of the apartments, and rented out the other apartments to family or third parties. These “Mom and Pop” building are NOT the subject of this post.

What I am addressing is Condominiums with four or more Units. These Units were either built as Condominiums, or have been converted from apartment buildings to condominiums. Some of these larger units are self-managed, but the great majority are managed by professional managers. These managers do not make things easy for the Unit Owners. There is almost always a charge for move-ins and move-outs and there is a charge for a 6(d) certificate, so-called, which indicates that there are no unpaid common area charges for a Unit which is being sold.

Condominium Documents, when available, are unsigned, and amendments thereto are not furnished. Floor plans are not readily available, especially now since Massachusetts condominium law has been amended so as not to require the recording of a certified floor plan at the  first-time sale of a Unit.

So, at least in Massachusetts condominiums, the law should be changed so that Condominiums with four or more Units, should be required to maintain a Website, which contains, at a minimum the following items:

     1. Floor Plans of each Unit

     2. A complete set of  recorded Condominium Documents, and amendments, with Registry information included.

     3. A form of a 6(d) Certificate which requires only “fill-ins” for completion.

     4. The names of the current, of record, Trustees.

     5. The name, telpehone, and email address of the individual who needs to be contacted to fill out Condominium Questionnaires as required by lender.

I would also suggest that Unit Owners have restricted access to minutes of the Trustees, so that Unit Owners can be kept up to date on proposed assessments and other matters affecting the Unit Owners. These can be distributed to prospective Buyers at the Sellers’ discretion, but I know that I always ask for them when I am representing a Massachusetts condominium Buyer, and they are often extremely helpful.

The cost to set up a webpage continues to go down. The need for an effective vehicle for Unit Owner and realtor communication is real. I would be interested in hearing your response to this initiative. In my mind as a Massachusetts title attorney with over 40 years of experience, this change in the Massachusetts condominium law is way overdue.

The Deadly Double Dip–Things for Unhappy Condominium Unit Owners to Think About before suing their Association

Tuesday, June 29th, 2010

The case made perfect sense. The Condominium Trustees were acting capriciously, and without any regard for my client’s well-being. There had been a water main break which has damaged my client’s unit, and he was aware of a substantial payment from the insurance company which provided the common area insurance. My client wanted to repair the damage to his unit, and he wanted a portion of the insurance proceeds to do this repair. 

So we wrote a few nasty letter, which were ignored. Then, we sat down with the client and discussed litigation. We gave the client a budget and a timetable. They were reasonable, and we  got clearance to proceed. We filed a lawsuit, and then we got hit with the BOMB. The Trustees hired a very expensive law firm to defend their position. The law firm required a substantial retainer, far more than our firm quoted for representing the client throughout the entire litigation, including a trial if necessary. By the rules of the Condominium, my client was required to advance his share of the retainer to the Trustee’s law firm. If this sounds like “Oz” to you, you can imagine my client’s reaction.

The case has since settled, with a result that my client could live with. In fact, my client received a substantial percentage of the advanced retainer back when the matter settled. That made things more palatable to my client.

There are some lessons to be learned from this set of circumstances, which I want to pass along to each of you:

     1. Review the Condominium Documents carefully before you Purchase. Look to see if there is an arbitration provision for disputes. Arbitration is becoming more common in newer documents, and some Lenders are insisting on arbitration provisions, especially for smaller Condominiums.

     2. Pursue all non-litigation avenues before deciding to start litigation.  Without arbitration. litigation is a lonely path for a single unit owner, and often more expensive than a unit owner can anticipate. Try to find a sympathetic person on the Condominium Board of Trustees, who can bring about a non-litigation based solution. It is worth the effort.

     3. If your Condominium Documents do not provide for arbitration, try to get them amended.  Amending Condominium Documents is generally expensive, mainly because the consent of Lenders will need to be obtained. Lenders favor arbitration. Therefore, the normal Lender will be receptive to the type of change which institutes arbitration. It is definiotely worth pursuing.

Many Condominiums are poorly managed, with the least capable people serving as Trustees. That being the case, it is imperative that the Condominium Documents be adapted, as much as possible, to permit free speech by unit owners and a non-confiscatory way to settle disputes. “Double dipping” really hurts, and it is not fair.

The Collection of Unpaid Common Area Fees–A Success Story with Legs

Tuesday, June 29th, 2010

Recently, a client of mine contacted me with a problem. He was the sole Trustee of a six unit condominium in Massachusetts, where I practice as a title attorney with over 40 years of experience. It seems that one Unit Owner had not paid common area fees for more than a year (believe it or not) and the Condominium was starting to feel the effects of the delinquency.

After chastising my client for waiting so long to get in touch with me, I went to work. Initially i sent a demand to the Unit Owner. As expected, this was ignored. My next course of action was a title search to determine the name of the Unit Owner’s mortgage lender. Once this was determined, I notified the lender of the large delinquency, including penalties, late fees and my fees, again to no avail. Finally, i pulled the trigger with the “silver bullet”–a complaint against the Unit Owner with notice that a foreclosure sale would soon take place to obtain funds to liquidate the outstanding indebtedness.

In Massachusetts, as well as most other jurisdictions, the amount owed for common area fees, when properly handled, constitutes a “super lien”, ahead even of the first mortgage. When the lender was notified of the fact that our law firm was taking the “super lien” step, they contacted me, asked how much the total outstanding indebtedness was and sent us a check for the total amount due, plus attorneys fees.

There are some great results which were realized by this exercise:

     1. The Condominium got every penny that was due.

     2. The Condominium did not have to pay our law firm any fees for services. These were paid by the lender, as part of their steps to remove the “super lien”.

     3. In future Questionnaires from othr lenders, the Condominium does not have to indicate a large receivable from a delinquent Unit Owner. Such disclosure often impeads getting a Condominium cleared for future mortgage loans.

There are some holes here, too. If the Unit Owner continues not to pay, future actions will need to be commenced. That will leave the Condominium with a 60 day or so shortfall on common area fees. On balance, however, the Condominium’s financial position has been much enhanced by the actions we have taken, and I would urge any of you who have this type of problem in buildings you manage, or are attempting to complete sales transactions, to contact knowledgeable counsel immediately to get the Condominium on this sure-fire collection course.

Difficult Condominium Trustees and Officers–The Enemy Down the Hall

Thursday, June 24th, 2010

Recently. I have experienced difficulty in dealing with Condominium “management”, so-called, with respect to matters which involve my clients. I am a Massachusetts title and real estate attorney, and in the course of my representing both Buyers, Sellers and current  Unit Owners of condominiums in Massachusetts, I have experienced an array of frustrations, including the following:
     1. Answering Lender Questionnaires.

Getting the condominium officials to respond to the Lender’s Questionnaire, so that a mortgage loan can be processed in connection with a sale. Recent underwriting restrictions have made the answers to the Questionnaire more important than ever. Most condominiums are not involved in litigation, or disputes with Unit Owners. The Lender needs to know these things, and the Questionnaire is the vehicle. Many times I have experienced situations where the Trustees just can’t get around to providing answers. There is no urgency for them, and they take theri sweet time.

     2.Disputes between the Trustees and a Unit Owner

These can range from permitting a Unit Owner to fix his or her Unit after a natural or other disaster to approving a request to do structural work to personal “vendettas” between neighbors. Most older documents do not have Arbitration provisions. In that situation, the affected Unit Owner often must initial litigation to rectify a perceived wrong. The irony of this type of situation is that once a litigation is begun, the affected Unit Owner  must pay not only his or her own legal fee, but a percentage share of the legal fee incurred by the Condominium Trustees to defend. As a practical matter, this unfairly inhibits the ability of a Unit Owner to protect his or her rights.

     3. Arbitrary or Capricious Trustees or Officers

There is not much that can be done with a person who wants to say “no” to every suggestion, even down to the need for the Trustees to have frequent meetings and keep minutes of meeting. If the difficult Trustee doesn’t like you. or doesn’t like anyone, you have a major problem, and the expense and stress of going to Court to have a Trustee removed is huge.
     4. Charges for Items that should be Free.

 Why is it really fair for a condominium to charge $150 for a Certificate that there are no Common Area liens on a Unit which is being sold? Why should a selling Owner be charged $200 for a “move-out” fee? Where is the justice in any of this, but, as most of you know, it happens, and it can chill transactions.

There are solutions to these problems, but they are not easy to effect, especially with the requirement that Mortgagees need to be involved in Master Deed amendments. These are some solutions which I would recommend, however, and they should improve the situation materially:

     1. Pay Trustees a decent stipend for serving. I would suggest forgiving two or three monthly common area fees for Trustees. That would encourage more people to become Trustees and eliminate the “Trustee for Life” people who have nothing better to do than frustrate the realistic requests of Sellers, Buyers and Unit Owners.

     2. Amend the Declaration of Trust to permit arbitration of disputes, with the losing party required to pay not only its fees and costs, but the fees and costs of the winning party. This approach would force more attention on reasonable compromises.

     3. Set term limits for management companies and Condominium officials. Change management companies every three years. Only permit Trustees to serve for two (2) terms. This will make it possible for new ideas and new approaches. it will, in effect, end “tyranny”  by the current regime.

Please let me know your ideas on this!!! I am quite willing to spearhead an offensive to change things in Condominium operations. Such changes are way, way overdue.

New Condominiums–More TRAPS for the unwary

Thursday, June 24th, 2010

It is starting to happen again. Just like it did in the late 1980’s and early 1990’s. Condominiums are in financial trouble, I have previously written a Featured Post about delinquent condominium Unit Owners and what Trustees MUST do to collect common area fees from them.

A similar, but potentially much more serious, situation obtains with the Condominium developer. As most of you probably know, as soon as the Master Deed is recorded, each Unit in the recorded document must start paying common area fees. There is some question whether each Unit needs to contribute the required amounts to the reserve account. That varies from state to state. Let’s just stick with the fee for each Unit for operations.

The law is that the developer must pay condominium common area fees for his unsold Units. I am afraid that this requirement is “more honored in its breach than in its observance”, as the Bard would say. Cash flow is generally tight for new developers, and they perhaps cannot afford to pay. They can deliver a Certificate at the closing, indicating that the common areas fees are paid with respect to the Unit which is being purchased. It may well be a different story for the unsold Units.

My suggestion in this area is that the real estate professionals representing the BUYER need to be militant. Place a provision in the Purchase and Sale Agreement or Rider where the SELLER makes an affirmative statement that the common area fees for all Units owned by the SELLER are current. Require the SELLER to demonstrate that fact at the closing by bringing a Condominium Bank Statement which  proves that payment has been made.

Once the SELLER understands that there will be no closing without everything being current, there will be a great incentive to make matters right. The numbers can really “explode” unless some approach is taken to require the developer to keep up the monthly payments. It is not a pleasant situation for a new BUYER to walk into a situation where there are financial problems at day one. All of us need to work hard to try to prevent this.

If you are looking for suggested P & S language for these situations, please contact me at etopkins@topbev.com. I am a Massachusetts real estate attorney, but I am reasonably confident that the language I have developed will hold up in other jurisdictions, as well.

Condominium Due Diligence–Our Professional Responsibilities

Thursday, June 24th, 2010

The stormy winter we have experienced needs to be factored in when purchasing a condominium unit. Roofs and other systems have been under a considerable amount of strain, and according to casualty insurance statistics, claims are at record levels.  Those leaks through ceilings and walls can be plastered and painted over. The causes of the problems, however, are being addressed by Condominium associations and the results may well be future special assessments. I am continually told by Sellers that the Condominium Trustees “do not keep minutes of their meetings.” This is distressing on two levels (1) is it a short-hand way of saying the Trustees really never meet? or (2) are there matters which are being discussed which can have potential financial impact to the Unit Owners, which the Trustees would rather keep to themselves? In either circumstance, this type of response raises a “red flag” for me, the attorney tying to protect my client who is considering a Condominium purchase.

More than at any time, the present state of Condominium governance places a responsibility on us as real estate professionals to ask questions and probe.  Ask the Management Company or a member of the Condominium Board of Trustees whether the Condominium is planning an assessment for a new roof or extensive system repairs. If there are assessments coming, try to negotiate with your Seller to pay some ,or even all, of planned assessments. Speak to other unit owners. Find out what they know.

At Topkins & Bevans, we pride ourselves on giving responsible representation to Buyers.  We review (1) Condominium documents, (2) minutes of the Trustee meetings and (3) recent budgets. and financial statements. We poke holes in these documents, where necessary. We direct question to the Management Company, the Trustees and the Seller so that when the Buyer moves forward, he or she is apprised of the animal he or she is dealing with. Sometimes, our Buyers move forward even though we have warned them of the pitfalls associated with their purchase. That is their choice, but at least we have permitted them to make an informed decision.

Review of Condominium Financial Statements and Operations–Some Guiding Principles

Wednesday, June 23rd, 2010

One of the functions of an attorney representing a Buyer of a Condominium is to review the financial statements and operations of the Condominium, as well as the constituent condominium documents such as the Master Deed and the Condominium Declaration of Trust. In a future post, I will delineate what I look for in the Condominium Documents. This post, however, concerns the important information which can be gleaned by doing a careful review of the Condominium Financial Reports,  and Minutes of Trustees, and asking some questions of the Condominium Trustees, either directly or through the Selling Agent or Buyer’s Agent, as the case may be.

        1. Condominium Statement of Operations

                          a.  Look at ALL of the captions, especially Repairs. Do the Repair costs seem high? If they are more than a few hundred dollars, more information is needed.  Is the Condominium “patching” where they should be making capital improvements? Will the new Buyer be required to pay for prior problems? Higher than normal Repair costs can tell you about how carefully the Condominium has been managed. See if the Condominium has a caption for “Accounting” and “Legal”. If there is none, that may be a danger sign. The Trustees may be “winging it” on decisions where they need professional guidance.

                    b.  See whether the income received represents payment in full from all units for the entire year. If that number does not compute, there are almost always delinquencies for common area fees. Massachusetts Condominium law ( and most other jurisdictions, too) gives the Trustees broad powers to start litigation for common area fees. The cost of same, including attorneys fees, is to be borne by the delinquent Unit Owner. If there are delinquencies, it may mean that the Trustees, for one reason or another, are not making real efforts to collect what is due from their neighbors. That is a danger sign for a potential Buyer, and could signal problems down the road.

                    c. If possible, obtain Financial Statements for more than one year. Carefully analyze the receipts section. If the number is consistently on the rise, it means that the Trustees are constantly raising the common area fee. Find out what the reason for that has been. If there is a pattern of loose or sloppy management, it may manifest itself in continuing increases in the common area fee.

     2. Condominium Balance Sheet

                             a. Look for how much is in the Reserve Account. While many Condominiums have taken a “pay as you go” approach to improvements, make sure that a Reserve Account is, at least,  in existence. In most states, Trustees are required to maintain an Operating Account and a Reserve Account. If there is no Reserve Account at all, the Trustees are not adhering to their statutory responsibilities. Perhaps, they are not adhering to other provisions of the Condominium law, as well.

                              b. See if there are any Accounts Receivable on the Balance Sheet. If there are, they are more than likely from delinquent Unit owners. Inquire as to the status of collection efforts. If they have not begun, that is a red flag for poor Condominium Management.

The other thing I always ask to see are Minutes of the Trustees for at least the prior Eighteen (18) months. If none exist, or if the Trustees do not regularly meet, there may be problems. I try to ask why.  If there are Minutes, i look at them for any indication that a Special Assessment may be coming. This can be an unpleasant surprise for my client, and when I know a Special Assessment is “right around the Corner”, I can sometimes request that the Seller bear some of the cost thereof. Depending on whether the Special Assessment is forward (something new that really is not the Seller’s issue) or backward (a repair of a roof or other important constituent common area part) I have had some success in requests for contribution.

Condominium Operations–It’s Time for a Change

Wednesday, June 23rd, 2010

Over the years, I have had many opportunities to become part of the Condominium process. I have drafted Condominium Documents, both conversions and new projects. I have closed literally thousands of mortgage loans, which involved either Condominium purchases or refinancing. I have also represented Buyers and Sellers of Condominium Units of all shapes and sizes. Based on my experiences, the following changes need to be implemented in Condominium operations, and we, as real estate professionals, need to be leading the way through our Boards and Legislative contacts to effect the following:

1. Condominiums Should be Required to file Annual Reports with the Secretary of State.     Most Condominiums do not keep current the names of the Trustees for the Condominium. I have, on many occasions, received 6(d) Certificates executed by individuals who are not the Trustees of record. In their Annual Report, the Condominium would be required to name the current Trustees, and affirm that the requisite filings have been made at the appropriate Registry of Deeds.

 2. Condominiums with Six (6) or more units Should be Required to produce, and keep current, Condominium websites. There is much too much inefficiency involved when a Condominium Unit owner attempts to sell his or her Unit. At the very least, the Condominium website will contain the following sections:

          a. Floors plan for each Unit. These are on record at the Registry of Deeds, but they are relatively easy to replicate on a website.

          b. A set of CURRENT Condominium Documents. Put them on the website as they exist at the Registry of Deeds, including all amendments. If nothing else, this will save the many trees which are killed to copy sets of Condominium Master Deeds and Declarations of Trust. The Buyer’s attorney can do his or her review of the Documents from the website. So can the Lender or the closing agent. Everyone wins, except Staples.

          c. The name of the current Management Company,if one exists, along with telephone number and email address of the contact person. Someone needs to be in charge of providing financial information to the putative Buyer. The website can designate that person.

          d. The website will contain a “ready to print” form of 6(d) Certificate. It is an outrage for a Seller to be required to pay $50 or $100 to the Management Company to deliver a 6(d) Certificate. It should be able to be printed out, at any time, and ready for Trustee(s) signature.

3. Condominiums Need to do a Review of their Documents, at least once every five(5) years. There are some very old documents in place, which are not responsive to modern Condominium living.  Rights of first refusal were in vogue in the 1970’s and 1980’s. What real purpose do they serve now? Some descriptions of common areas are prolix. Many lenders are requiring Condominiums to have arbitration provisions with regard to disputes. Older documents rarely, if ever, contain arbitration provisions.

4. Condominium Trustees need to be more vigilant in terms of collecting Delinquent Common Area fees. There is a statute in place which gives the Condominium Trustees broad powers to collect delinquent fees. Many of us in the Massachusetts Bar fought long and hard to have this provision enacted after some Condominiums in the late 1980’s and early 1990’s went bankrupt under the crush of non-paying Unit owners. We are in a difficult economy at present. That does not excuse non-payment of Common Area fees. Many Trustees are totally unaware of their rights to collect these fees. In case my readers do not know, the Trustees can commence a collection action, charge the Unit owner, in full, for attorneys fees and the obtain a judgement which will permit the Condominium to foreclose on the Unit, with rights ahead of even the First, and other,Mortgagees. That being the case, it has been my experience that as soon as this collection action is commenced by the Trustees, the Mortgagee(s0) steps in and makes the Unit current on its Condominium Fees. It should be a requirement in the Condominium Statute that the Trustees commence an action at any time a Unit is two months behind in paying common area fees.

The ideas set forth herein are not new, but they need to be acted upon. The current, inefficient way that Condominiums are being operated limits our opprotunities as real estate professionals. I would welcome any further suggestins any of you may have. I live with these probelms every day, and,probably, so do you.