Management Company issues

I became a member of our Condo Association's board of directors last autumn, mainly because I was not at all happy with the lack of communication between the board, the residents, and the management company. I have had major doubts about the competence of our property manager for some time, and was actually quite happy a couple of weeks ago when we found out that she was no longer with the management company. I (and my fellow board members) were not so happy, however, when we were told by the new manager that we had no money in our reserve fund and are, in fact, more than $100K delinquent on payments to some of our contractors. The company will not admit that the former manager was fired, but I'm assuming that admitting that might leave them open to some type of liability. We (the board members) met at the management company's office last week, with our new manager, their accounting manager, and the president of the company. Their explanation is that a number of things contributed to our current financial crisis, as follows:

We have not raised our HOA fees enough during the four year regime of the recently departed manager. Therefore, the amount of money coming in has not been enough to cover our expenses, and the manager has been taking money from our reserve fund to cover said expenses. This draining of the reserves went on for four years, and yet as recently as one year ago, she stated at a community meeting that we had $150K in that account. Apparently, the high balance was somewhere around $160K when she began using it to pay the bills. The board had been given copies of the Reserve Statements, which clearly stated well over $150K in available funds. What we non-accounting types did not realize was that those funds were negated on the Balance Sheets.

We are owed approximately $75K in past due HOA fees, adding to the lack of funds to cover expenses. The management company did hire an attorney to collect these fees and he is making some progress.

We suffered two fires a couple of years ago, causing our insurance premiums to go through the roof. We paid the higher premiums for at least two years until the manager switched insurance carriers and was able to lower our premium.

Instead of using the money from the insurance payments to pay the contractors who did the fire restoration work, the manager used that money to pay some of our other bills, leaving us in debt to those contractors. The management company freely admitted this last fact.

Now that we've had some time to digest what the management company told us in the meeting last week, we have gone over the expense statements and come up with lots of questions. We have requested another sit down with the management company to go over specific line items on both the expense statements and list of overdue bills.

The board readily admits that we should have been paying closer attention and had more control over the former manager; however, we can't put that horse back in the barn and need to just be more vigilant (and less trusting) from now on.

So, my two questions are:

What, if any, exposure to liability do we as board members have for the current state of affairs? The former manager assured us that insurance was in place to cover our liability, but until out next meeting with the company, we don't know that for sure.

Is the management company liable for the fact that their employee misled the board into thinking we had reserve funds and that our expenses were being met, or is it all on the board for not insisting on receiving copies of contracts and invoices, and not insisting on a clear understanding of the financial statements?

Thank you for taking the time to read this tome (if you made it all the way through). I appreciate any advice you can offer.

thanks,
tammy

Tammy,

In those four years, didn't you have budgets or financial reports made to the board? What about the written statements at the general meetings? Were any audits done in the past four years?

If you have written reports, you might have action against the management company. However, at the same time, the Boards over the past four years should have been verifying what the MC was reporting.

Tim