Mgmt. Co. Overcharged Condo Owners

Started by KerryL1 • 9 replies • 1208 views

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KerryL1 (California)
Posts: 14,550

Posted:

I wrote about this a while back, but the thread got too long and off topic. 5% of our high rise condos is owned by a developer we'll call "Biz."

The Mgmt. Co (MC) did not bill them for all of the reserves items they can or do use. Instead the 200 residential Owners were billed for the entire amount. That totaled about $100,000 over 9 years.

I tried correcting these errors back in '12 for '13 and made some headway--Biz was billed a little in '13/'14. Increased billing to Biz occurred in '15' & '16. Finally in '17, the MC will bill Biz for their entire share.

I met separately with our VP & with our treasurer last week and each agreed we should try to encourage our MC to somehow compensate the residential owners for the $100,000 they were over billed. Last night the board approved a meeting among me, the MC's CEO & our board president tomorrow. The CEO is aware of this topic and probably has had their head accountant review the situation, which is good as I'm missing some data.

The president, wants us to try to get the $100,000 or some portion from the very-wealthy Biz. I don't know his reasoning. I think instead that it's the MC that owes our residential Owners some sort of compensation. What is your opinion? Please give reasons.

(I do NOT have a lawsuit in mind OR compensation to individual Owners.)

RichardP13 (California)
Posts: 3,868

Posted:

Kerry

For the life of me I can't understand your insistence that the MC should compensate the owners for an over billing error. Did the MC steal or embezzle the money, no. The monies are in your reserves. So figure a way to adjust the reserve contributions over a period of time for the affected entities. If the owners were over billed for two years, turn the table and over bill the other party for two years. Balance the books.

Mistakes happen. But ultimately and according to your governing documents, the ASSOCIATION is responsible. If you feel overwise, take them to court. I can tell you how a reasonable judge will decide.

CfD (Virginia)
Posts: 265

Posted:

I missed that earlier thread Kerry, but based on what you have here it seems Biz owes money it was not billed for going back 9 years. MC failed to bill Biz, but in my view Biz still owes a debt to the association. Unless I'm mistaken, failing to receive a bill does not relieve one of a legal, financial obligation.

I don't see where the MC is the one that owes your association anything unless their contract with your association specifically details what they are supposed to do to collect dues. The MC is an employee of the association under the direction of the board. In my view it is your board that has the ultimate responsibility to oversee what the MC does. Anywhere along the way a responsible board would have caught this problem and potentially fired the MC. If anything, I think your membership could potentially initiate a lawsuit against your board for a breach of its fiduciary duty to the membership.

Your association's loss seems like it is a result of your property manager's negligence and your board's lack of oversight of the MC. Depending on the specific language of any fidelity bond your association may have for the actions of the property manager, you may be able to file a claim there and the lawyers of the insurance company may potentially go after Biz for restitution.

My first effort, however, would be to approach Biz to potentially negotiate a payment plan to bring their debt, including interest, current.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Kerry

Can I assume the MC set up the billing/payments for each unit, showed it to the BOD, and the BOD approved?

If so, the BOD was at fault.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Kerry,

You seem to be obsessed with what is actually a trifling amount of money. My math says each residential owner was overcharged about $55 per year for nine years, or about $4.63 per month. Considering that your condo are upper-end units in a high-rise in the high-rent district, I doubt that this has impoverished anyone. I can't get a meal at a fast-food joint for that amount.

I do not know what the statute of limitations are in California but here it is six years. So right off the bat, if you pursued a lawsuit one-third would be unrecoverable.

Setting assessment amounts is normally a function of the board of directors. Even if the declaration states that certain payments must be made I fail to see how either Biz or the MC would be liable if the duly-elected board of directors fails to properly interpret the declaration. Thank your lucky stars that the amount is so small and spread out over such a long time, otherwise your members might consider recovering from each individual director under a derivative action lawsuit.

Your best course of action would be to negotiate a settlement with Biz. Take whatever you can get and then let it drop.

AugustinD
Posts: 5,144

Posted:

Hi Kerry, I think $100,000 could be a significant amount of money for many a HOA's reserve fund. Good for you for helping recover this. I agree with the others who are saying that this was a billing error. The error does not relieve the Biz from its debt. Immediately bill the Biz appropriately, setting up a payment plan as needed.

For what it's worth, around 2013 my former HOA discovered that the original developer (long since no longer in control) owned several lots and had not been billed for, nor paid, the assessment on the lots ever since the turn over took place around 2000. The developer was now trying to sell the lots to a second developer. It needed any debts on the land to be relieved. There was some civil back-and-forth and a settlement was reached to settle the debt. I argued for interest to be added, pursuant to the gov docs, on account of the developer having written the gov docs and so its people should have known it owed the assessment every year.

KerryL1 (California)
Posts: 14,550

Posted:

I like some of the ideas. Keep 'em coming.

Meantime, while only about $5/mo per residential Owner, this is combined with a lot of other errors that actually comes out to be about $10/mo. per res. Owner.

There also were major issues with 80% of res Owners paying too much and 15% of them not paying enough. There's one op. budget, but Biz, and the 80% pay different amounts that the 15%. The 80% has it own reserves account as does Biz. These 80% paid about $15/mo too much. some of it wasn't billing problems but errors in the original DRE (Dept. of RE, Now Bur of RE) Budget. Our CC&Rs do NOT instruct anyone how to bill, but directs all to the DRE Budgets. These issues finally are straightened out for '17, where the 15% will pay their fair share.

More later.

KerryL1 (California)
Posts: 14,550

Posted:

I must repeat from my first post above: We have NO intention to sue anyone!!

It's easy to sneer at $5/mo, or $10/mo or $20/mo. We like many urban HOAs have older owners aging in place with fixed incomes. And I maintain we directors should do our best to see that all Owners get a fair shake and that no group gets privileges off the backs of another group(s)

It's bizarre that I'm the one to find all of the errors as I have no background whatsoever in math, accountancy, etc., etc. But one discovery led me to another, etc. Oh, I suppose I can blame previous boards, Finance Committees and treasurers--our 1st one for 5 years was a CPA. And of course they/we all are responsible. I'm serving two more years and will make a good template for all future boards and MCs to follow re: billing.

The Board here does not approve the billing amounts to each & every condo of which we have maybe 15 configurations and our dues also include a sq. ft. variance for certain op. budget items. Our HOA attorney told us that of the 1,000 CC&Rs he's dealt with, ours are among the 10 most difficult precisely because pages of DRE Budgets must be dealt with. And, of course! we need to rewrite our CC&Rs!

Yes, Augustine, the prez & I met today and both like the idea of putting "recovered" monies, if any, into reserves. He explained his reasoning for seeking compensation from Biz and they are similar to yours & CfD's above. My spouse agrees. And I now think the approach is a good one. WE'll see how it goes tomorrow....

KerryL1 (California)
Posts: 14,550

Posted:

Well, I didn't get anywhere with the CEO, who's head accountant was on a conference call with us and with whom I've worked before. The CEO explained that through '10, Biz could not have been billed because no one seemed to know about it until a different error occurred. So I think she was saying that the board should have know that Biz should have been billed.

After that time, there are a lot of variables to take into account that I'm unable to manipulate and the MC has no inclination to do so. I can see that these variables matter. So, I'm guessing when all is said and done the amount would be around $30,000.

But I was outgunned. Th CEO suggested we approach Biz an ask them, but I doubt any directors will be interested.

I'm glad I pursued it though even though I probably could have done better if I were more sophisticated. Th lesson is obvious: even if you have a board with strong backgounds & experience in business finances, those of us who do not, still need to be vigilant and never take anything for granted.

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