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KASS: Two options for deadbeat condo owner

DEAR BENNY: I’ve been reading your articles for over 10 years. They have been very helpful both to me and my condo association. I serve as vice president in one of the properties.  It is a small condo, not more than 22 units. The building doesn’t have any luxury amenities such as underground parking, a pool, a health club or a concierge; just the basics. One of our homeowners owes the association over $17,000 in unpaid condo fees. You have written articles on this topic but I could not locate them. Because we don’t have any services I am aware of that we could freeze (water, trash pickup, mail box, etc.), can you suggest a solution from your prior articles on the best way the board can collect?  We’re tried using counsel but costs can be expensive for a small association and we haven’t been successful.  – Charlene

DEAR CHARLENE: First, you cannot freeze or stop water, heat, or trash pickup. That will get you and the other board members in hot water. And clearly you cannot even touch the mail box; that’s federal property.

You have tried legal counsel. What did he or she do? My office handles a lot of condo collections and we have two options. First, file suit against the owner. In the District of Columbia, for example, the small claims court jurisdiction is limited to cases under $5,000. So we try very hard to get our condo clients to not let the delinquency go over that amount. Otherwise, you are in what we call the “big court,” and that can be time consuming and expensive.

Alternatively, we often foreclose on the unit on behalf of the association. Yes, it will cost some money but one of two things happens when we notice the foreclosure sale. Either the delinquent owner suddenly finds enough money to get current, or the unit is sold. Either way – in most circumstances – you stop the bleeding. And if no one buys at the foreclosure sale, the condo will own it and can rent it out or sell it.

Your small association could have used the $17,000-plus that is owed; why not spend a few thousand dollars on legal fees – with an experienced attorney –  so that there will be no more delinquencies on the books? You are only hurting yourselves and your association; if there are too many delinquent owners, it may be difficult – if not impossible – for potential owners to get financing or current owners to refinance.

I would consider joining the Community Association Institute (CAI). That is a national association dedicated to working with and for community associations throughout the country. It has a wealth of knowledge and a large selection of books that will be of assistance. You can reach them online at caionline.org.

DEAR BENNY: I am the treasurer of a large condominium association. Our reserves are close to $1.5 million. We have been careful to keep our reserves high and to replenish them when we need to use those funds.

But here’s my problem: Right now, they are earning less than 1 percent per year. The stock market seems to be on the increase, and I wonder if I can invest some of the money in stocks and even bonds? – Skylar

DEAR SKYLAR: As treasurer – and presumably an elected board member – you have a fiduciary duty to all of the condo owners. The money is not yours. nor that of the board. It belongs to all of the owners, including those who elected you into office.

Accordingly, you have to invest the money in absolutely government-insured accounts – no matter how much it hurts. If your association does not have a good investment counselor, I suggest you make arrangements to get one. And that advisor should bill you only for his or her services; you should not buy any monetary product from the advisor.

I know that interest rates are next to nothing. I am old enough to remember when my Merrill Lynch money market account was paying over 18 percent. But those good old days are gone and I doubt we will see them in our lifetime.

I tell my condo clients you can gamble the reserve accounts in Las Vegas, but only on the condition that each and every unit owner signs an authorization to do that.

Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: mailbag@kmklawyers.com.

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