Transition Problems From the Old MC to the New One

Started by JerryD5 • 10 replies • 287 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

JerryD5 (Colorado)
Posts: 218

Posted:

Several months ago, our HOA board hired a new MC to take over 1 Mar. They fired the old company. The new company started the process for a smooth transition. It has been one cluster after another. First, the old company was very slow to send over the required files (past minutes, correspondence, account ledgers, etc). 5 months later they have only received a small portion of those files. The biggest missing item is our bank accounts and the funds in them. Before March, we had somewhere in the neighborhood of $12000 in our operating account and $10000 in our reserve account. The old company's accounting dept sent checks totally less than $5000 for both accounts. They claim they are holding back money to pay any outstanding debts. Again, 5 months later they keep promising "oh we are working on it" or never return calls/emails. Our old account manager quit the company in frustration. They represent several other communities in our area and all are looking for new management (based on neighborhood Facebook discussions). The board believes that the company is on the brink of financial collapse. Our new company had a lawyer send a demand letter this week but we do are not sure how successful that will be. Meanwhile, we are a very dire financial situation. Oh, to add insult to injury, the old company has kept all association dues mistakenly paid to them after 1 March by the owners. I believe that was in the $700-1000 range. Obviously, they should have rejected the payment or at least sent it on to the new company.

I am not on the board anymore, thankfully. I am glad I don't have to deal with this big headache. Well, until the owners get an assessment bill to make up the operating/reserve deficiencies.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Did they not tell you how much they kept to pay the old bills? Do you know if they were paid in March? That may explain the discrepency in the numbers if there were bills still circulating. I am sure they took their fee out as well.

It may be that you will need to get new bank accounts or even a new bank. That may help with starting new with the new company. They seem to be saddled by the mistakes as well. It could take some time to sort out.

Former HOA President

MarkR21 (North Carolina)
Posts: 710

Posted:

Omg what a headache! What were the warning signs? How can this be avoided at other hoas?

Most importantly what can be put in a contract to avoid this crap!!!!

JerryD5 (Colorado)
Posts: 218

Posted:

We did get new bank accounts under the new MC. The biggest problem with all this is that the old MC has refused to communicate with anyone: the board or the new MC even with dozens of emails. We have no idea why they would keep so much money and they have refused to justify the amount.

As for warning signs, the board has indicated the number 1 issue is their lack of communications for several months leading up to the new MC taking over 1 March. No return phone calls to residents asking questions and constant reminders/requests by the board on specific actions.

I was on the board when we hired the MC 8 or 9 years ago. We interviewed them extensively and in the beginning they were excellent. As the years went by is when we experienced very substandard level of service. In my opinion I believe they started getting much bigger than they could handle. I believe they managed 40-50 properties with 3 account managers. Our new company was amazed they had so many properties with so few account managers. Our account manager was just run ragged. Though he dropped the ball on a lot of our actions.

Several years ago, the state of Colorado required every HOA company to be state certified and they had a lot more oversight. A year or 2 ago, the state did away with those certifications. We can't even complain to the state regulatory agency. Our only option is to complain to BBB which isn't much. As I said previously, we all believe that they are on the verge of financial collapse as more and more HOAs get rid of them.

CathyA3 (Ohio)
Posts: 6,299

Posted:

General Information

Management companies handle transitions like this all the time, and the reputable/experienced ones do it without too many hiccups.

How to minimize these sorts of issues:

* Hire good companies: check references before you sign contracts, listen to what people in other communities are saying (social media can be a gold mine, but take what you read with grain of salt)

* Treat the exiting company fairly: stick to the terms of the contract, talk to them about potential issues before you kick them to the curb. They shouldn't be blindsided by an abrupt "you're fired".

* Prepare for the transition. Many contracts require a two-month notice period, so you'll have time to plan for bumps in the road. Ask both companies what they need from the board to make this go smoothly. Designate one board member to act as the contact person for any issues that come up.

* Don't forget to give homeowners adequate notice as well, including reminders as needed. People who use automatic bill payment for assessments can forget to update their bank information.

* Don't overlook your vendors or other service providers. You'll make life easier if you plan your transition to coincide with the natural end of service contracts.

In other words: communicate, communicate, communicate.

It's not unusual to keep old bank accounts open for several months to allow checks to clear, homeowners who continue to send assessments to the old bank, etc. That said, the exiting company *and* the board should have a good idea of how much comes in and goes out each month and how much is currently outstanding.

When Things Don't Go Smoothly

* Communicate with both parties to see where the hold up is.

* Keep in mind that the exiting company has been fired, and people who are fired often have an attitude about it. The only reasons they have to work with you is their professionalism and their desire to have decent references from past clients.

* If it looks like the exiting company is playing games, you may have to have a "come to Jesus" discussion. Point out that the HOA has to continue doing business and paying bills, so this will limit the amount of slack you're able to cut them. If you get a whiff of real shenanigans, you may have to get the HOA attorney involved (it can happen but it's pretty unusual).

SheliaH (Indiana)
Posts: 6,964

Posted:

Quote:

Posted By CathyA3 on 07/15/2022 6:14 AM
General Information

Management companies handle transitions like this all the time, and the reputable/experienced ones do it without too many hiccups.

How to minimize these sorts of issues:

* Hire good companies: check references before you sign contracts, listen to what people in other communities are saying (social media can be a gold mine, but take what you read with grain of salt)

* Treat the exiting company fairly: stick to the terms of the contract, talk to them about potential issues before you kick them to the curb. They shouldn't be blindsided by an abrupt "you're fired".

* Prepare for the transition. Many contracts require a two-month notice period, so you'll have time to plan for bumps in the road. Ask both companies what they need from the board to make this go smoothly. Designate one board member to act as the contact person for any issues that come up.

* Don't forget to give homeowners adequate notice as well, including reminders as needed. People who use automatic bill payment for assessments can forget to update their bank information.

* Don't overlook your vendors or other service providers. You'll make life easier if you plan your transition to coincide with the natural end of service contracts.

In other words: communicate, communicate, communicate.

It's not unusual to keep old bank accounts open for several months to allow checks to clear, homeowners who continue to send assessments to the old bank, etc. That said, the exiting company *and* the board should have a good idea of how much comes in and goes out each month and how much is currently outstanding.

When Things Don't Go Smoothly

* Communicate with both parties to see where the hold up is.

* Keep in mind that the exiting company has been fired, and people who are fired often have an attitude about it. The only reasons they have to work with you is their professionalism and their desire to have decent references from past clients.

* If it looks like the exiting company is playing games, you may have to have a "come to Jesus" discussion. Point out that the HOA has to continue doing business and paying bills, so this will limit the amount of slack you're able to cut them. If you get a whiff of real shenanigans, you may have to get the HOA attorney involved (it can happen but it's pretty unusual).

And document the hell out of everything!!!! It would also be helpful to get the association attorney involved to ensure the contract is being cancelled properly (e.g. proper notice was given).

I suspect no one thought of setting up a transition plan, let alone designate a special committee that could work with both companies to ensure everything was done according to specific deadlines. Live and learn.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

DouglasK1 (Florida)
Posts: 2,046

Posted:

I don't have any experience with having an MC, but it would seem that a lot of the problems would have not have been an issue if the association had their own bank account with at least one director having access to it. It's not clear from the OP if there are bank accounts in the association's name or if the MC is just has their own bank account with comingled funds from multiple associations.

Escaped former treasurer and director of a self managed association.

MarkR21 (North Carolina)
Posts: 710

Posted:

I’m in the middle of renewing contract with management company and this is an eye opener
Does any contract have a clause where a board can easily take back ownership of bank account and thus bypass this mess?

CathyA3 (Ohio)
Posts: 6,299

Posted:

In my experience with using MCs, the association always is the owner of the accounts, not the MC. The MC will have authority to pay the bills, make deposits and the like, but that's not ownership. The MC will probably have a preferred bank that all of their clients use, but funds are absolutely accounted for separately. Co-mingled funds would be a firing offense in my book, and auditors would slap that down hard.

CathyA3 (Ohio)
Posts: 6,299

Posted:

If you've never used a management company, I recommend finding one in your area that handles many communities (look on the companies' web sites) and talk to them. Their willingness to answer potential clients' questions will tell you something about them. You can find out in detail how things work, which should set your mind at ease.

Also, FWIW, if the MC actually owns the accounts, then how could they ever be charged with embezzlement? They absolutely can, which will tell you that the money legally belonged to someone else - ie. the HOA.

I've also commented in the past that only allowing board members to control funds can give you a false sense of security. People can be reluctant to suspect good ol' Joe down the street and so may ignore signs of trouble that would not have been ignored if an MC were handling the books.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Out yearly assessments get deposited in a bank account (one of the biggest association banks in the US) our MC controls. Our MC receives and pays all our associations invoices. The BOD gets in depth (30 page) monthly financial reports. The BOD has a way to freeze the account which we would do if we saw unexplainable abnormalities. Our association, not the MC, controls our two reserve funds which are in banks.

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here