Make us your home page

Lack of reserves a problem for condo owners, association

Q: My mother is retired and owns her condominium with no mortgage. She is considering selling and moving in with my sister, but she is concerned that she won't be able to sell because of issues with the condominium association. Her neighbor recently applied for a reverse mortgage, but when the bank reviewed the condominium association's financials, the mortgage was turned down because the association has a deficit and no reserves.

My mother feels bad for her longtime neighbors and is also concerned that any qualified buyers for her own condo would be denied by their lender for the same reason the reverse mortgage was denied. Is she right to worry and, if so, what can she and other condominium owners in her situation do to make sure that their financial security is not ruined by the condominium association's financial status?

A: This is what I call a red flag for many associations. I have been concerned for years about associations that fail to properly fund reserves and other expenses. The state has made it difficult for condominiums to lower or eliminate required reserves. The statutes require boards to properly calculate necessary reserves, and only a majority (not a majority of quorum) of owners voting at a members meeting can reduce or eliminate the required reserves. Too many boards and members think reserves are not necessary, but here is a prime example of what can happen if the reserves are not collected.

Owning the unit free and clear provides your mother the opportunity to sell it and take back a purchase money mortgage. That would generate an income to her each month and provide some possible tax advantage. However, she would need to have a real estate attorney draw up the papers. The problem is that if the new owners do not pay the mortgage payments or fail to pay the condominium fees, she would need to have protection by foreclosing. As to the market and the economy, this is not one of the best times to sell, but taking back a mortgage could be to her advantage.

Manager, board need referee

Q: We are a small condominium association with an on-site manager who does an outstanding job. Some of the owners are only here a few winter months. Do homeowners have the authority to tell the manager that they are the employer and the manager is the employee? Our manager will probably resign because of the orders given by these homeowners. The board has approved a job description list with duties that are carried out by the manager. Any suggestions for dealing with these members would be appreciated.

A: I would suggest that the board approve a form for the members to fill out if they see a problem or want work to be done. The board should instruct the manager to tell people to fill out the form to report a problem. The manager should also tell them that he or she is not authorized to perform work without the board's instruction. If necessary, the manager should take the name of the owner and turn it over to the board.

This way the board can take certain reprimand actions against the members. You seem to know who the members are; the board needs to send a letter to them explaining that the board has given the manager certain duties and that, if they interrupt the manager, it interferes with those duties.

Personal items in common areas

Q: Is the condominium responsible for repairing or replacing personal property that is placed in a common area? On unit floors individual owners place furniture, fixtures and artwork to decorate the hall. The association over the years has allowed unit owners to decorate these common areas at their own expense. Such items are not donated nor purchased by the association. A circumstance has occurred whereby an owner's leather chair was damaged, and the owner is requesting restitution since it was in the common area.

A: First, the board has no authorization to allow private usage of the common areas. I can see two sides to this question. One is to have the board request donations of decorative items, and the other is to not take action against the decorations. From your question, it appears that the owner never gave up possession of the chair. With limited information, I would not believe the association has any responsibility to make a repair or replacement.

CAM shouldn't serve on board

Q: Can the president of a homeowners association board of directors also be the licensed property manager for the HOA? Are there any Florida state restrictions that would prevent a licensed community association manager from setting up a home office?

A: I do not know of any legal restriction on a president holding a community association manager license, but there could be conflicts of interest. It is not a good thing for the CAM to serve on the board, as he or she must make decisions that could represent a conflict of interest. Keep in mind that all directors have a fiduciary duty to the members. If the CAM is there for self-serving interests, it could be a violation of this fiduciary duty.

As to the question of working out of his home, check your documents to see if operating a business in the home is a document violation. You can also check whether the county allows home business and whether he has an occupancy license.

Also, does he have proper insurance? If he handles the association funds he needs proper bonding or fidelity coverage that is separate from that provided by the association. If the association hires him as an employee, it needs to pay payroll taxes, workers compensation and other insurance coverage. If he is an independent contractor, he needs to carry his own insurance and name the association as an additional insured. As you can see, there is more to consider than just having the license.

Association withdrawal no option

Q: Have you ever heard of a group of HOA members threatening to drop out of the association because the board did not handle an issue in a fair manner? I have read my covenants but cannot seem to find an answer. I think this would be an effective means to make the board wake up and smell the coffee in this especially bad economy.

A: Owners do not have the right to just withdraw from the association. When a person receives a deed to property, on the deed are references that establish that an association exists and that owners are required to comply with the rules and regulations of the association. If owners are not happy with the current board, then they have the right to elect a new board at the next election. However, since the board has an obligation to maintain and operate the association, the duties of a new board should be the same. If an owner or group of owners is unhappy with the operations, they have other means to change the direction of the board and the association.

Builder can pay shortfall or fees

Q: Our community is a little more than half built. The manager told me that the builder has the option of either paying the dues for the unsold parcels or paying any shortfall that may occur in the budget. True or false?

A: True. The statutes allow the developer to pay either the shortfall or a fee for any unsold lot. The way that most developers calculate the budget is called a build-out budget; under such a budget the builder pays the shortfall. A build-out budget is calculated on all homes built and sold. When a builder calculates a budget like this, his expenses should be much less than the actual budget expenses. As one example, the lawn service is only performed on those homes where owners live and should be less than if the community was totally sold and occupied.

Richard White is a licensed community associations manager. Write to him at 6039 Cypress Gardens Blvd., No. 201, Winter Haven, FL 33884-4115. He cannot provide personal replies by mail, but you can e-mail him at Please include your name and city.

Lack of reserves a problem for condo owners, association 02/20/09 [Last modified: Friday, February 20, 2009 3:30am]
Photo reprints | Article reprints


Join the discussion: Click to view comments, add yours