Restitution from MC for Overbilling?

Our high rise twin towers has a commercial element, "Biz," which should pay 5% of everything it uses. (Biz does not use any of the res. recreational amenities.) There are about 200 residential condos.

In 2012, I discovered that Biz wasn’t contributing anything to reserves for those items that it uses. A few of these are listed on the original DRE Budget filed with the State by the developer before the project is completed. The CC&Rs tell us nothing except to adhere to the DRE Budget. The MC’s accountant and our PM agreed to a small contribution/mo. for the items on the DRE list, eff. 1/13.

I mistakenly thought I needed Board approval to get Biz to contribute more and sought it. The Biz Owner has a permanent seat on our board of 7 per our bylaws. He is a developer, very charismatic, and he persuaded a majority on the Board to vote no on adding any additional contributions for ’14. He said further study was needed.

I next realized that I did NOT need Board approval to get these billing errors corrected. I nagged our PM & the CEO of our MC once budget season arrived in ’14. The CEO wrote that I interpreted the DRE Budget differently than the corporate staff. But, unexpectedly, the PM called me & the Board president into her office and gave us a list of further items Biz would contribute to in ’15. I asked the PM for an explanation, but her reply was incomprehensible. Hmmmmm....had they seen that I was right after all and wanted to quietly make corrections?

In mid ’15, we got a new PM, who’s very knowledgeable about high rise mechanical systems. I met with her & our engineer to double check on all such items that I suspected served the Biz lots too. No resistance. They quickly cooperated and even added more to my list for 2016.

The Biz Owner now contributes $1,200/mo. to the repair & replacement of the reserves items that it uses. Res. Owners were overbilled $14,400/ann. for 7 years--from at least '06-12. That’s nearly $100,800. (Check my math!) The total started dwindling as errors were incrementally corrected in ’13 & ’15. I was simply happy that the errors were corrected.

But now, after thinking about what I chronicled on a different thread here, I’m considering asking the MC CEO for some kind of restitution. Does it seem warranted? What $$ would make sense? Where would it go? How do I start? I’m thinking I’d meet first with our VP & treasurer, who are the only other Owners with much understanding of these things.

(Please do NOT ask where the treasurer was all this time, or the Board, or the Finance Committee. That would be unhelpful. Our budgets are almost impossible to comprehend and 4 MC’s including the original budget preparer in 2001 have made mistakes; ditto 3 HOA law firms, and three reserves specialists. Revision of our CC&Rs will not happened this year)

Thanks, Tim. No intention of trying to get restitution for individual Owners as it's obvious what a mess that would be.

I might add, though, that the MC did provide "refunds" to any owners who were billed too much on a different matter. The period in question was '06-'09. Owners who lived here in '10 received refunds for all of the months they lived here during that 06-09 period. Owners who'd sold during that period were not sought, but the MC wrote that if any heard of the program and could prove ownership, they'd receive refunds. Those of us who underpaid were not asked to "give back" our shortfalls.

The MC in our contract with them is responsible for collecting assessments. They base the amounts on their interpretation of our governing docs, but, as noted, they must review the original DRE Budgets to bill the various entities here. I'm not so sure that Biz even realized till '13 that they were being underbilled. And they never were billed for these reserves components.

I'm feeling that it's not right to turn our backs on a $100,000+ error. It would seem to be part of my duty of loyalty and duty of care as a director.

Is your reasoning, Tim & Richard, that our HOA did receive the correct amount of assessments so there's no need to compensate 200+ residential Owners for this expensive error?

In other words, my duty is to the the HOA, not 95% of the Owners?

Did you declare the refunds that would have gone to previous owners as income for tax purposes?
Why didn't you collect from those who had underpaid as they owed the money?

Both of those would also be a "part of [your] duty of loyalty and duty of care as a director. "

Once started, if the business owner wants to fight the issue, as Richard pointed out, you are now in a court case that can cost far more then your looking at collecting.

A consequence of this action might be that the business owner closes it's doors and moves.

As I understand the issue (which is not a good understanding) you attempted this several times and the boards decision was contrary to what you were trying. That too would be a defense argument if this issue went to court.

As I said, Move forward.

I wrote nothing, John & Tim, about a lawsuit against anyone. I have NO intention of going that route. Certainly not against Biz since (to repeat my above) I don't think they knew they were underbilled. (The developers' firm is exceptionally wealthily in any case-- no reason it would "close it's [sic] doors..."

I related that our MC had refunded $$ to Owners who'd been overbilled in the past so I could show there is a precedent. The total amount they'd collected was accurate for my HOA, so our HOA received all $$ it should have. The MC paid the refunds themselves and did not think it reasonable or fair to bill Owners who'd been underbilled.

(I don't remember the exact content of the letter from the MC to Owners who rec'd refunds 6-1/2 years ago, Tim, so I don't recall if they advised Owners they'd owe taxes on the income.)

I sought Board approval exactly once (please see above again, Tim) to try to get yet more contributions from Biz. Then I realized our DRE Budget for Biz (to which our CC&Rs refers us) is quite clear. Biz must contribute to what they use (or might use, e.g., the Building's ceiling sprinklers system).

We did not, Richard, hire any "experts" until late '15. I don't know why you think we did long ago. This recent activity was from our HOA attorney, who advised that we needed a certified budget specialist (CCIM--look it up) to disentangle our budgets. The budget guy, in turn wrote we needed confirmation of certain operating expense splits from those who know the work processes. One example: there are three areas that are billed for our $200k/ann. custodial service. We needed to have a time study done to see how much time was spent in Biz & the other two op. budget areas. (but none of this expert stuff had anything to do with what components Biz uses that we reserve for.)

I definitely am NOT the only one involved in our HOA, Richard, who finally began to see how crazy our budgets are. I just was the first. Our current GC has recently told our board that of the 1,000 or so sets of CC&Rs he's reviewed, rewritten, etc., ours are among the 10 most complicated. Our 1st treasurer--for five years-- was a CPA; of our 4 MCs, 3 are highly reputable; one was a start-up, that did no harm. Our Finance Committees and treasurers' backgrounds are in purchasing & contracts for a large school district; securities analysts (2); community college math profs (2); CEO of one of CA's largest housing developers; realtor/mortgage broker specializing in condos; administrator in a large school district and an MC owner/architect. The latter was so wrapped up in making sure we pursued construction defect litigation (and rightly so!) that she never had a chance to get into our "books" before she sold.

I think the reason none picked up this particular $100,000+ error, and the others I've discussed elsewhere--related but not the same-- is that financials presented to them weren't laid out in a way that the errors were obvious or that prompted anyone to ask: "Hey, how do we arrive at the monthly dues Biz should pay anyway?" and I think the reason I discovered the (really) three kinds of errors is because I was so ignorant of any of our or any other budgets, finances, etc. My background is completely unrelated. I presumed, at first, that my questions were stupid or irrelevant, but my own strength is inquisitiveness... so I kept asking.

What I AM thinking about, after having thought just getting it all "repaired" was enough, is a friendly sit down with our PM, MC CEO & their corp accountant with a couple if our officers (a just-retired univ, econ prof, and former stock broker), very briefly summarizing the chronicle of events, and asking, perhaps, for a nice discount for a couple of years on our (very pricey) mgmt. fee or some other "compensation" that would be beneficial to my community.

I am still hoping for strategy and/or tactics. I appreciate any ideas. I still don't see any compelling reasons on this thread why we should not proceed.

Kerry

My suggestion to evaluate the situation would be after the "friendly sit down" you are told to go pound sand. Then a decision needs to made how to proceed.

Kerry

First, not sure what advice you want John or I to pass onto the MC. If you had this many eyes on this, you would think someone would have caught it.

I have done budgets and assessments for 4 multi use developments. I also worked on a proposed budget of $3.8B for a proposed City of San Fernando Valley back in 2002. At the end of the day it's just numbers. The key to success is a clear understanding of all the facts.

For clarification, the DRE budgets are prepared by the builders or developers, not the MC. After a few changeovers of management, obtaining a DRE budget is a challenge as it goes into storage or is lost.

IF, the Biz owners were incorrectly billed BASED on factual data from the DRE budget, then bring them all into a meeting, with your legal counsel and present them with a corrected billed for the years you suggest are in question. Obviously, you need Board approval to do this.

The last paragraph of the first post states a number of people/companies made mistakes, why are you singling out the MC? Why not goes after the people who approved the budget(s)?

Just saying

Kerry

KL: Incorrect, Richard. These are recorded instruments just like our Condominium Plan is. I had some since '12, but had our PM check with the state and we received a few more versions. Easy peasy. Just sayin'.

You may have been recorded, good for you, but are they required to be recorded and if so, please cite your statue.

Richard: "...the DRE budgets are prepared by the builders or developers, not the MC. ."
KL: Our DRE budgets were prepared by our 1st MC's (as I've written more than once) Mgmt. & Budget Consultant. She and her Exec. VP & Budget Consultant both signed all three DRE Budget Worksheets. I assume the developer gave her the info. I assume the 1st HOA attorney also was involved.

I believe I have worked on a few more HOA's and DRE budgets than you. Everyone that I have seen were signed by the developer and their office. Sorry. You're might be different and I am sure than there are others. Again the information is from who?

Once we get the last few odds & ends straightened out this year, We will ask our PM to make a matrix clearly showing WHO pays for what and THE % in each line item of our operating budget and three reserves accounts.

This should have been done years ago. Why are you still waiting. What if a new Board take over?

This is your association's mess. Without seeing any documents, have to say you need to bill back the Biz. It's one thing if the $100K was an expense item that monies HAD already been spent, but you are talking reserve funds, or future funds, expenses that haven't come up. There is a way to fix the issue without making enemies.

Kerry

You posted a question. Everyone else said to move on. If someone else has more experience on some of these matters, please ask them to step forward. This has nothing to do promoting any business. This is from experience and not all for this industry.

DRE budgets do not have to be recorded. If I had a board resolution that was recorded, are you saying all should be?

As I mentioned, I have experience in multi-use HOA's that have variable assessment based on what is outlined in the CCRs. First thing I would have done is enter all owner information and second is setup the assessment spreadsheet after thoroughly reviewing the CCRs, DRE budget and previous annual budgets.

But you're right, I think we're done here.

John, said: It might be time to leave the sleeping dog alone. I won't speak for John, but that almost sounds like time to move along.

As far as the advice comment, not surprised in the least.