Dealing With Dysfunctional Massachusetts Condominium Trustees & Homeowner Associations

images-12I’ve been getting a fair amount of calls these days regarding what I like to term dysfunctional condominium management. Usually these are smaller, self-managed condominiums, converted multi-family homes, etc. Sometimes, however, the problem of dysfunctional condominium management can plague larger condominiums.

As I often tell clients, condominiums often bring out the worst in people. Professionalism and respect get thrown out the door, and childish behavior rules.

The problems can range from poor to no financial management, unpaid monthly condominium fees, problems with the transition from the original developer to the association of unit owners, power hungry condo trustees, special assessments, and disputes over costly repairs and capital improvements. Here’s some advice for would-be condominium buyers and condo unit owners to prevent and deal with dysfunctional condominium management problems.

Dealing With A Dysfunctional Condominium Board of Trustees or Association

A. Financial Mismanagement

A condominium is supposed to run like a democracy with trustees being elected by the majority of unit owners, and subject to being voted out of office when they do a poor job. The procedures for elections and removal should be set forth in the condominium declaration of trust/by-laws. In the case of financial mismanagement, unit owners often may have difficulty enforcing the internal governance rules. At minimum, disgruntled unit owners should call a special meeting and attempt to removal or vote out trustees who are causing problems. If the internal governance doesn’t work, unit owners may seek legal action for “breach of fiduciary duty” against the trustees in the Superior Court. In egregious cases, the court can grant preliminary injunctions and other remedies to protect the unit owners from financial harm.

B. Unpaid Condominium Fees

With the down economy, unpaid condo fees have become a real problem, especially for smaller condos who rely on the monthly income to pay common area expenses. Fortunately, we have a strong Massachusetts condominium lien law with some teeth, called the “Super Lien Law.” Condominium associations can file a lien for unpaid condo fees against the delinquent owner, and the first 6 months of unpaid fees will have “super-priority” status over and above the mortgage(s) on the unit. The association can then foreclose on the lien and sell the unit at auction. Attorneys’ fees and collection costs can also be pursued. The condominium may even require that a unit owner’s tenant pay the association rent to pay down the unpaid fees. These are a very valuable enforcement mechanisms to ensure that condominiums get their condo fees paid. Often the mortgage lender will pay the condo fees on behalf of the borrower to avoid the super-priority lien.

C. Transition Issues

For new construction condominiums, the developer desires to have control over the condo management during the majority of the sell out process. This, however, can create conflicts with unit owners who have bought units. Typically, the condo documents will give the developer control over the association until 75% of the units are sold out or 3 years after the master deed is recorded, whichever is earlier. But what if the developer isn’t managing the finances properly or isn’t doing much of anything? Often the only viable remedy in this type of situation is a Superior Court lawsuit for breach of fiduciary duty against the developer-trustees.

Questions To Ask Before You Buy Into A Dysfunctional Condominium

  1. What are the condominium by-laws, rules & regulations? You or your attorney must read these condominium documents and make it a condition of your offer. Condominium by-laws and rules are supposed to provide a structure for good decision making. Make sure you carefully review the rules and regulations before buying.
  2. What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
  3. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment.  Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
  4. Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands, others like the Boston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit.  It’s a good idea to ask for the last 2 years of condominium meeting minutes to check what’s been going on with the condomininium.
  5. Is there a professional management company or is the association self-managed? Usually, a professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas. Self-managed condos tend to have a higher incidence of dysfunction.
  6. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Ask whether there are any pending lawsuits.
  7. How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues, and result in a higher incidence of dysfunction. It can also raise re-sale and financing  issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates.
  8. What is the condominium fee delinquency rate? Again, a signal of financial trouble. Plus lending guidelines want to see the rate at 15% or less.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Condominium Real Estate Attorney. For further information you can contact him at info@vetsteinlawgroup.com.

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  • Matt

    I have owned a condo in Massachusetts for more than five years.  I pay my condo fee every month but I’ve never seen ANYTHING about where my money goes or what it is used for.  The man who renovated the entire building (He does not live there) handles the money for the association.  We’ve never had a meeting and it appears as though he is the only one “handling” the money.  I guess my question would be, is there a law stating he has to show us where the money is going?  I feel like I need to know what’s going on.  There are a few things I think need updating but I have no platform to bring up these issues.  I feel like I should call a lawyer but I don’t want to pay for something that 21 other unit owners are having a problem with.  Not sure how to proceed?  Any advice?

    • Jim Bob

      You should have a copy of the condo governing documents as a consequence of buying the condo. If not, you need to discover these documents in the hands of other condo association owner/members, so that you know what actions the members of the condo association can take to control the finances and governance of the association. 

      Your municipal planning board may (or may not) have a copy of the documents, and your deed also indicates the name of the association, which can be searched in public documents to see if the association is properly filing as it should, or paying real estate taxes, or fees to maintain the corporate entity with the Secretary of the Commonwealth, and so on. 

      At the very least, your own deed states the name of the condo association, which you can use to track down the public records that exist on the association, and check with the town for taxes, and the address of record for real estate taxes. 

    • Jim Bob

      You should have a copy of the condo governing documents as a consequence of buying the condo. If not, you need to discover these documents in the hands of other condo association owner/members, so that you know what actions the members of the condo association can take to control the finances and governance of the association. 

      Your municipal planning board may (or may not) have a copy of the documents, and your deed also indicates the name of the association, which can be searched in public documents to see if the association is properly filing as it should, or paying real estate taxes, or fees to maintain the corporate entity with the Secretary of the Commonwealth, and so on. 

      At the very least, your own deed states the name of the condo association, which you can use to track down the public records that exist on the association, and check with the town for taxes, and the address of record for real estate taxes. 

  • jimmy

    i am a conco unit owner I have lived here in Boston Mass for 13 years The cleaners allways took out the trash for recicling paper and plastic Management send out a new handy book stating we put it out side the back dook even do the cleaners are getting paid 25.00.00 to take care of the cleaning of the building I am a senor and that why I moved to a condo in the first place the said if we dont sign the handy book we will be fined 50.00 Thank You Bernadette C

  • Frank McNally

    I have owned a condominium in Ma since 1998. The developer turned it over to the owners In 2002. An owners meeting was called and held ( no quorum was present in person or by proxy ) A 5 member board of trustees was elected by the owners who were present for staggered terms . Each year at the Annual Meeting their has been an election held to fill the seats of and trustee whose term is up. THEIR HAS NEVER BEEN A QUORUM AT ANY MEETTING IN THE HISTORY OF THE ASSO. The 2013 Annual meeting was just held with no quorum. The Chairman of the board informed us that without a quorum their could be no election and the Board would appoint people to fill the open seats. Logic tells me that if no election can be conducted without a Quorum their has never been a legal board and they can’t appoint anyone. I think 12 years of elections can not be ignored. My question is what can be done. Frank M

    • Elizabeth

      We have a similar issue? Our docs say that if the board falls below three, within thirty days, the board without the required quorum can appoint trustees (two).The board had two resignations, but did not fall below three members(The original board was five members).A vote of unit owners is required to appoint new members in this case. However the board appointed two new trustee without a vote of unit owners. Is there a legal remedy for this situation?

  • agodfried

    What about Homeowner Associations? Do they fall under the Condominium statutes?