Q&A: Creating a Condo Association

Q I live in Newark and I just bought a two-family home in a condo. However, when the developer built these, he was the actual association and then along the years with all the mortgage defaults, things got a little off and the condo has been a mess ever since. One person has “self-proclaimed” herself as the “president” and tries to run the association and collect fees but the only thing that I know is that I pay my fees and seemingly nothing is done. The streets are always dirty, garbage gets thrown everywhere by the garbage collectors, grass is dead or unkempt. It just doesn’t make any sense.

How can we set up an association of which, all monies collected, would be collected directly through the homeowner’s mortgage by the bank and then the bank would pay the association? My major concern is that we don’t know where the money we are actually paying is going. Another problem is that a majority of the homes are rented. Actual homeowners do not live there but as an association we should be making rules that all residents have to follow. Also, the condo has on or about 57 homes, of which half are in foreclosure, so those homeowners really don’t care nor do they pay their mortgage. It seems we are really stuck between a rock and a hard place. How can we fix this?

—Nightmares in Newark

A “The first thing you need to do is to get the association up and running properly,” says attorney Gregory M. Dyer, a partner at the law firm of McCarter & English, LLP. “You should start by obtaining copies of the organizational documents of the association and the condominium. When you purchased your unit, you should have received a public offering statement, which would include copies of the master deed for the condominium, bylaws of the association and articles of incorporation of the association. It is a good idea to obtain copies of the actual recorded and/or filed documents to ensure that the developer did, in fact, record and file the documents to establish the condominium and to form the association, and that you have copies of the documents in the form in which they were actually recorded/filed. I have seen instances in which, years later, the association learns that the association’s articles of incorporation were never filed by the developer. The master deed and bylaws should have been recorded with the Essex County Register’s Office located in Newark (Hall of Records, 465 Martin Luther King, Jr. Blvd.). The association’s articles of incorporation should have been filed with the Division of Commercial Recording, Department of the Treasury in Trenton.

“The bylaws of the association will provide you with guidance as to the manner of calling meetings of the unit owners and holding elections for the board of directors. The woman you describe who has proclaimed herself the president and tries to run things may be well-intentioned and honest. However, only a board of directors elected by the unit owners will have the legal authority and the legitimacy in the eyes of the unit owners to effectively manage the affairs of the association. Following the procedures outlined in the bylaws, a meeting of all unit owners should be noticed and held and a vote conducted to elect unit owners to the board of directors. The board can then elect/appoint officers of the association. Once elected, the board should take control of the association’s finances. At a minimum, this would include developing an annual budget for the association, setting the monthly maintenance fees payable by the unit owners, preparing a roster of all unit owners and their addresses, ensuring that monthly statements setting forth the sums owed are mailed to all unit owners and depositing all funds collected into a bank account opened in the name of the association.

“Depending on the funds available, the board can begin to hire vendors to maintain the exteriors of the buildings, perform landscaping work, snow removal, etc. (Generally, each unit owner is responsible for maintaining the interior of his or her unit). Some unit owners may be willing to volunteer their services to help maintain the property and the grounds, at least until funding is in place to hire professionals to perform such work. If possible, the board should retain the services of an accountant to help the association set up proper accounts, begin to produce audited financial statements and otherwise get the association’s finances in order. It is important that records be maintained of all association activities, particularly financial records. The members of the association are entitled to inspect those records to, as you put it, see where their money is going. In time, if funding permits, the board can retain legal counsel for the association to pursue unit owners who are in arrears in the payment of assessments.

“Your idea to have the unit owners’ mortgage lenders collect the sums necessary to pay the condominium maintenance fees and pay those fees to the association (as they do for property taxes and homeowners’ insurance) is an interesting one. Certainly, one could make the argument that the payment of such fees helps to ensure that the property is properly maintained and, therefore, helps to protect the value of the bank’s collateral. However, I am afraid that it would be nearly impossible to get the various mortgage lenders to take on the burden of collecting for, and paying, such fees. The banks collect for and pay the property taxes because tax liens against the property would take priority over the bank’s lien. They see to it that the homeowners’ insurance is paid to protect their collateral. With limited exceptions, an association’s lien against the condominium unit for unpaid maintenance fees will not take priority over the bank’s lien, and the effect that non-payment of maintenance fees may have on the unit’s value is, at best, indirect and remote. Consequently, the association will continue to be responsible for collecting common expense assessments from the unit owners.

“The board should hold regular meetings open to all unit owners and adopt reasonable rules and regulations governing the operation of the association and the conduct of residents.Existing rules and regulations and covenants and restrictions set forth in the master deed and bylaws should be reviewed, as desired rules may be in effect already and merely need to be enforced by the board.”

Related Articles

CAI Releases Statement on Foreclosure Moratorium

Calls for 'Flexibility, Understanding, and Business Continuity'

When Associations Borrow

What to Know Before Taking Out a Loan

Removing a Condominium Owner

A Complex Legal Process

What to Do About HOA Finances & Arrears During Coronavirus

How Associations Should Respond

Don’t Raid the Cookie Jar

Capital Budgeting is Essential

Collecting Arrears

When Residents Don't Pay