HausFS has worked with condo associations and condo owners in and around Chicago for more than 10 years. In that time, we've discovered that most condo owners feel that condo living is really challenging, and further, that the problems they face are unique to their association, while condo living is a breeze for everyone else. Somehow, every other association has gotten the hang of it while they are struggling.

This is definitely not the case. Every association faces conflict and the fact is that many of the problems that arise are common from one association to another.

When we speak to prospects who are looking for management support, I often remark that condo living is tough. I even say that I don't think it should exist as a housing option because it is so complicated and causes so much stress. Almost immediately, the board member I'm speaking to breathes a sigh of relief. It's as if they are afraid to admit how hard it can be, because they assume they are the only ones who feel this way.

Rest assured, condo living is tough. But with the proper help, it can be infinitely better. Don't hesitate to get the support you need in the form of professionals who understand how you feel. You're not alone, and there is always a way to make condo living easier.

Lauren Peddinghaus, CMCA, AMS
Owner, Haus Financial Services, LLC

Bank fraud is not a pervasive problem for our small association clients here at HausFS, but it does happen on occasion. Fraud typically takes the form of unauthorized ACH debits or debit card charges.

Here are a few ways that condo board members can reduce the risk of fraudulent transactions and lost funds.

Do not allow the use of debit cards. We've said it before and we'll say it again. Debit cards provide easy access to your association's bank accounts. If a card is lost or stolen, funds can disappear easily. It's also not unusual for board members to mistakenly (or not mistakenly) use an association debit card for personal purchases.

Use online bill pay to pay contractors, not paper checks. When you issues a paper check to a contractor or vendor you don't use regularly, you've put your bank account information into that person's hands. They can now pull your bank account's routing and account number and use that information for unauthorized debits. When you use your bank's online bill pay, your account information is protected as most banks use a single funding account for this service that is not connected directly to your account and cannot be used for such fraud.

Look into ACH debit approval restrictions with your bank. Check to see if your bank has the option to restrict ACH debit transactions from unauthorized sources. You may be able to set preferences that allow for vendors like ComEd and AT&T to debit your account directly, but prevent any other company from doing so.  

Make sure that more than one board member has access to bank accounts and that they are reviewed regularly for any suspicious activity. The sooner any fraudulent transactions are discovered, the sooner you can take action to remedy the problem. It may be necessary to close out the existing bank accounts and open new ones to prevent further fraud.

There is a board election coming up and one of the owners in your association is behind on paying assessments. Can that owner be prevented from voting in the next election and possibly serving on the board?

While it might seem unfair for an owner who is not paying their share to have a voice in association business, even delinquent owners have a right to participate in any ownership vote, including board elections, and to serve on the board. Delinquencies affect voting only when it comes to passing amendments. Even then delinquent owners have a right to vote, but they do not need to be counted toward quorum requirements.  

Board members should be taking steps to remedy owner delinquencies when they occur. If a new board is elected, information about those steps should be communicated by the outgoing board. The new board will then have the fiduciary responsibility to address the delinquency, even if one of those board members is the subject of the action.

Bankruptcy can affect a condo association's ability to collect delinquent amounts from owners. When an owner files for bankruptcy, the association must cease any collection action against the owner until the bankruptcy has either been denied or discharged. The balance that has accumulated up to the date of the bankruptcy filing is protected from legal action.

Depending on the type of bankruptcy, the association may be able to recover all or part of the debt through a bankruptcy payment plan (Chapter 13) or the debt may be discharged and not collectible against the owner (Chapter 7).

But what happens if the owner then forecloses? Per the IL Condo Act the association can collect six months of unpaid assessments plus legal fees from a third party purchaser at judicial sale or upon re-sale from the bank to a new owner, provided it has taken the proper legal steps. Would the owner's balance prior to bankruptcy be included in these collectible amounts? Per condo law attorney James Stevens of Chuhak and Tecson:

"It would depend on the type of bankruptcy. Usually the lien remains against the property in a Chapter 7 but is not enforceable against the owner. The six months amount would remain due post foreclosure if the association takes proper action before the foreclosure concludes. The debt would be paid off during a Chapter 13 so the remaining lien is not particularly an issue so long as the owner completes their plan."

Bankruptcies and foreclosures can throw a wrench in collection efforts. If your association is experiencing delinquencies coupled with bankruptcies and/or foreclosures, Haus Financial Services can help.

 

The topic of reserves is a big one for small condo buildings. HausFS clients often want to know how much they should have in their reserves. The answer to this question, unfortunately, is not simple.

Reserve funds are monies set aside over time to provide for the eventual repair or replacement of major building components. These are projects that don't happen frequently (such as roof replacement, tuck pointing, hot water heater replacement, etc.) but will have to be addressed during the life of the building. The best way for any condominium association to determine how much they should have saved for these projects is to have a Reserve Study completed by a qualified engineer. A Reserve Study will inventory all of the common elements that must be maintained by the association, predict their useful life, project the date of required replacement or repairs, and estimate the cost of that work. The Reserve Study then uses this data to calculate the annual Reserves Contribution required to properly fund the reserves. A study often covers a 20-30 year span and should be updated every five years or so.

The problem is, most small associations do not go to the trouble of having a Reserve Study completed. In fact, none of our clients do. Cost is a factor, and many condo owners simply aren't planning 20-30 years into the future. But failing to adequately fund reserves can lead to large special assessments that owners may not be prepared to pay.

In lieu of a Reserve Study, small associations may want to opt for an annual inspection. This allows the board to discover what maintenance items should be handled now, what may need to be done in the next few years and what can wait. Having a year or two (or more) to plan for a major expense is always preferable to trying to collect a large amount in one fell swoop. It can also prevent smaller projects from becoming larger (and more expensive) projects. This approach may save you a lot of money and stress in the long run.

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