One of the biggest problems that can cause the downfall of any co-op or condo is a lack of funds, or more specifically, not enough money to keep operations running smoothly and to make the necessary repairs to keep everything up to par.
These financial firestorms may happen when a co-op or condo development has a long-running squabble with the building sponsor/developer, is faced with a disproportionate number of sublets and rental tenants, falls victim to a major unexpected, ill-prepared-for repair project, or are the unhappy victims of fraud.
If there’s no money in the reserve fund, a lack of equity to borrow from to make repairs or not enough people able to pay high special assessments, the building will be in serious trouble—falling into bankruptcy or worse.
The Root Causes
When it comes to money, whether it’s a household budget or a multi-million dollar co-op or condo budget, honesty is always the best policy. This is especially true in being honest with oneself and maintaining a realistic perspective on the bottom line.
This can be a difficulty when boards or board presidents do not want to be the ones to ask their friends, neighbors and fellow unit owners for extra money in maintenance fees each year. One of the most frequent causes of financial trouble is “the desire to create a ‘no increase’ position so years will go by without maintenance increases,” says David Ramsey, a shareholder attorney with the law firm of Becker & Poliakoff in Morristown. “The fact is that the costs of living go up.” If the association is not raising fees, then “they are cutting corners somewhere. Residents may like it but it’s generally not a good thing for finances.”