Posted:
I know that it has been a few years since I last posted on this topic, and I will explain why I stopped posting and what has occurred since then.
1. Roughly, a week or two after my last post I was "blackballed" by the Board, and about 2 to 3 weeks later I resigned.
2. At the monthly Condo meeting for May of 2010 between the Board and the residents I brought all of my evidence that proved that a few current Board members, one in particular (Has been on the Board since the 70's), breached his fiduciary responsibility by making a series of financial transactions for roughly 1 year that can be defined as gross negligence for roughly 1 year. Normally, there might be 10 to 15 residents, not including Board Members, at the monthly meetings, there were roughly 50 residents for this meeting (We have 280 Condos, and roughly 250 were filled at the time of the meeting).
The result of his actions drained our Capital Reserve Fund from roughly $250,000 down to $20,000. To make matters worse, he and/or the Board never drafted/made a plan to restore these funds back to the Capital Reserve Fund. Furthermore, a Capital Reserve Fund Study that was performed in 2003 recommended that roughly $85,000 a year to be placed in the Reserve Fund.
Second, I explained how roughly 50% of the residents were not paying their monthly Condo Fees, and that The Board voted 3-2 against collecting Late Fees and the penlites and did not want to enforce collections because they do not want to have any conflicts with their neighbor/friend. However, we were still paying a lawyer on a monthly basis to file claims for past dues, but The Board did not want her to enforce the collections.
I explained to the residents that we are at a crossroads, and if we do not come together to figure out a plan for our financial situation, then in roughly 2 to 4 years our financial problems will get to a point to where we will not be able to fix them. In other words, unable to pay our monthly expenses. And, I predicted the following events will occur over the next 2 to 4 years. Also, I told the people at the meeting that we need to organize at least 60% of the residents to sign a petition to have the one board member who is responsible for this removed, and if they have any questions or want to see the evidence to contact me, and I would be willing to talk to them.
(1) There will be a yearly increase increase in Condo Fees because we have to find another revenue source if residents continue to stop paying their dues.
(2) There will be an increase in residents who do not pay their Condo Fees because (1) the economy will continue to get worse and since they know some of their neighbors are not paying their fees, then they will stop paying as well when they have to choose which bill does not get paid for the month. Also, there is a strong possibility of a one time assessment in addition to the monthly condo fees.
(3) The Condo Association will not have the money to make major repairs such as roofs, siding, etc. One set of units are 30 years old and the other are 20 years old, therefore, most of the units need to have some major repairs done to them. For example, if there are 4 roofs that have to be replaced, then only the worst roof will be replaced, and the other 3 will have to wait.
(4) Crime will increase because as the economy continues to get worse people will become more desperate, and we will not have the money to pay for some type of security.
(5) As crime increases and people continue to stop paying their condo fees, our property values will decline. To make matters worse once the banks find out about our financial problems they will not issue mortgages to the buyer and it will become very difficult to sell our Condos
(6) Within 4 to 5 years from now we will be bankrupt, and the state of New Jersey will take over our Condos.
EVIDENCE I HAVE AND PRESENTED:
- Monthly statements from 2000 through 2010 for the bank account for the capital reserves, and the monthly statements for our operating account (used to pay short term bills). Starting around January 2006 through May/June 2007 the capital reserve fund monthly statements show withdraws of $10,000 to $15,000 every month without any cash deposits. Balance went from $250,000 down to $2,000. Also, all of the statements have copies of the checks, which shows who signed them (The President I am going after signed every check).
- Since my last post, I have found invoices for the roofs that were completed during 2006 and 2007. However, the total amount of the invoices are for roughly $150,000; whereas, the canceled checks show roughly $250,000, all to the same company. There are 5 invoices that show the cost of each roof, including materials and labor, was $30,000 (Our units have 5 homes linked to each other with another 5 homes linked in the back, I would guess that the total length is around 50 yards horizontally). Last Summer, when I showed these invoices to the Board member who resigned right after I was elected, he said that he thinks we were overcharged because it costs roughly $20,000 to $25,000 to replace a roof in 2012. Not to mention, there is $100,000 that is not accounted for in the invoices (there is a chance they were lost).
- Water Bills from roughly Jan 2007 through December 2008, and they show we stopped paying our water bill in May of 2007, which was the last month the capital reserve fund had any money in it. Also, shows that we did not pay our water bill during the months of May, June, July, August, and September. Furthermore, the pool was open during the same Summer, which increased the amount of our water bill.
- A copy of a Capital Reserve Study from 2003 that states roughly $85,000 for the next 20 years should be placed into the Reserve Fund on an annual basis. If any capital projects were to be undertaken during this time, then (1) a plan has to be made to show what project is being completed, (2) Estimated cost of the plan (3) How the cash used for the cost of the project will be replaced
- From 2003 through 2005, The Board spent roughly $40,000 to $50,000 a year on roofs, and during this time the Capital Reserve Fund's
balance was between $250,000 to $350,000. Therefore, The Board understood that money taken out of the Reserve Fund was to be replaced
and The President of the Board during this time is the same one who I am trying to be charged with gross negligence. Furthermore, the
reason I know he understands this concept is because he signed every check that was written out of the Reserve Fund from 2000 through 2010.
- The Board has failed to record any minutes from their meetings going back to at least 2003 because one of my neighbors was on The Board from 2003 through 2007, and he said The President (The one who I am trying to prove gross negligence on) told him that during the 90's there was a vote to stop keeping minutes of the meetings.
- No permits were filed with our township for these roofs, and no plan to repay the Capital Reserve Fund for these roofs. Furthermore, since 2008 the Board has yet to come up with a plan to replace the money in our Reserve Fund. Instead, since 2008 through 2010, The President has deposited the monthly Condo Fees into our Reserve Fund, but within a week transfers all of the cash to our operating account to pay the monthly bills. As an accountant, I can tell you this is fraud/ a sham because he has shown no intention of trying to rebuild our Reserve Fund. If he did have any intention, then he would deposit the condo fees into the operating account, then any amount left over is then transferred to the Reserve Fund. Instead, he is trying to give the appearance that money is going into the Reserve Fund, but is being spent on capital projects.
To say the room was filled with anger was an understatement. I had 10 to 15 people come up to me after the meeting wanting to help get the Board member removed, and help get our finances back on track. However, no one contacted me after the meeting, and no one ever has. However, a few nights after the meeting someone slashed my tires. Then slashed them again when I got it fixed. I guess someone was either pissed or scared. I made an appoinment to go to a lawyer to see what our options were, and if he could be charged with gross negligence. The following month we went to an attorney, but once we got to the office I had an allergic reaction to some medication and had to go to the hospital. But, this attorney would no longer meet with me. I made an appoint with another attorney, but in the mean time there was going to be special election.
There was to be an election the upcoming month to replace the Board member who had resigned. Three people ran including one of my neighbors who was previously on the Board (He was the main Board member who had The President resign in 2007 once the Board realized he drained the Reserve Fund and ran up a water bill of $60,000. He helped point me in the direction of where to look for possible fraud, aka water bills, and wanted to run again because he felt that there was someone finally on the Board that he could work with and maybe save this place from bankruptcy). At our next weekly Board meeting I asked the members the following question:
- Is there a plan to fund the Reserve Fund? Not only was there not a plan, but 2 of the members did not know what the Reserve Fund was let alone that NJ Condo Law required us to fund it on a regular basis. Once showed them the Reserve Study that I had mentioned at the last meeting, and that we were about $500,000 under funded they wanted to vote on when to open the pools. To make matters worse, one of the pools was closed the previous Summer and required about $10,000 of work on it just to open it. They said that they received too many complaints last Summer about it being closed, and promised to open it that Summer because they did not feel like hearing there neighbors complain. At this point I realized I was alone in understanding our financial problem, and that unless we got people on The Board who understand this we were doomed.
The results of every election are supposed to be read in front of the residents at a meeting open to everyone, and normally these meetings have the most people show up compared to the rest of the year. However, this time there were only 2 residents, and they were told to leave and the results as well as the election for positions within the Board would be held in the back room. At this point in time I knew something was wrong. One of The President's friend, a book keeper I might add (However, from my conversations with him he has no understand accounting or finance at all. Granted, he can input data into an accounting system, but he has no idea how the numbers connect in the general ledger to form the income statement and balance sheet) won the election. Immediately after the results were read they held the elections for the positions, and I was out voted for Treasurer by The President's friend. Instead, I was not given an official position (We have President,Vice President, Treasurer, and Secretary. The other person holds no position, but really only the President and Treasurer have any power. This is because every check has to be signed by the President and another board member other than the Treasurer. The treasurer is the only person who has the access to both the bank statements and direct access the accounting system.)
Right away everything in the room started spinning because I realized I had been "blackballed". I asked to see the election results, and the Board refused to give them to me. Instead of reacting or saying anything that I could not take back, I went home, and wrote a letter of resignation because (1) I was alone on the Board and (2) I did not want to be held financially responsible when this place falls apart. I said to myself if none of the residents care about what happened, and if the Board prevents me from doing anything, I just dont care anymore. When I went to the other attorney, I explained to him what happened with me and the board, but I showed him all the evidence. He said that I have a case for gross negligence against the President. Also, I asked him about how the payment would work, and he said not to worry about it. I was assuming that the Condo Association would be responsible, but a week later he sent me a bill for $600 and if I wanted to continue that I would be responsible for paying him, not the Condo Association. As a result, I said forget it, and since then I have felt defeated, and just gave up.
,
Since then, Summer of 2010, the following has happened:
(1) Roughly 33% of the people are paying their Condo Fees, down from 50% in 2010
(2) Condo fees have risen roughly 20%, condo fee is based on what type of unit you have and there 3 different types.
(3) An assessment of $750 for each unit was passed by the Board last Fall
(4) Home Values have declined roughly 30% to 35% (some of this is based on the economy)
(5) Homes were being broken into at such a rate that the Board had to pay the local police station (Program available to pay off duty cops to patrol your area) to patrol our Condos 2 to 3 weeks a night to try and prevent the break ins.
(6) A lot of the home owners are unable to sell their Condo because certain banks will not give a mortgage to a buyer who wants a Condo in our association (Some banks are still giving out mortgages though).
The last election, which was a month ago, became very personal which I will discuss shortly. First, the one resident who asked me to run in 2010, but resigned after 2 or 3 months after the election, ran in 2011 and won back his seat. He saw the "financial cliff" we are about to go over, and wanted to do everything in his power to prevent The State from taking over. He explained to me that we are currently at a point to were the condo fees themselves are not enough to cover the monthly expenses, and the only reason we are staying in the black each month is because they have begun to collect the past condo fees through our attorney. Also, there is only $20,000 in the Reserve Fund with no plans to try and build it back up. After he was elected he came to me, and asked for financial advice. I explained to him
(1) I explained to him though the bank statements how the president drained our reserve fund and never replaced it(He was not at the meeting when I explained it to the residents)
(2) Once we have a negative monthly cash flow, then it will be extremely difficult to prevent bankruptcy.
(3) Can not raise condo fees any more because the ones that are currently paying will eventually reach a level to where they can not pay anymore. Also, I recommended that maybe if you decrease fees, then more people will pay, and the increase in people paying will be more than the cost of the cut. Or, issue a 1 time assessment of $500 to $1000 to be paid in installments, and that by doing this then maybe the residents will finally realize and understand our financial situation. The real goal of the assessment is mainly to get the residents to understand our financial situation, and any money collected from it would be a bonus.
(4) Cut as many costs as possible, but not to the point to where it hurts us. For example, close the pool because we dont have the money to run it, but do not lay off a maintenance man because that prevents us from fixing issues with the condos.
(5) Get a lawyer ASAP to protect yourself from any liability in case we go bankrupt with you on the board. Also, see if and how we can press charges against the main board member who put us in this financial dark hole.
During this past election, about a month, 6 people ran, 3 of who were up for reelection and 1 who was a previous board member, and roughly every week leading up to the election they each sent out "letters" blaming each other for the current financial situation (The assessment worked because that was the main topic of heated debate). However, after the first election not enough people voted, which just goes to show how little the residents care. (Our bylaws require 2/3 of the owners of the units to vote. If unit is owned by bank, not counted within the 2/3) After the 2nd election, only 1 of the previous Board members was reelected, and 2 new people were elected ( 1 of them owns 10 units, and owns a real estate company. ) Finally, the president that help cause our current financial mess was not reelected.
For those that read all of this, thank you, here are my questions:
1. I honestly feel the ex-president that caused the financial mess we are in needs to be charged with gross negligence for his past actions. I have the feeling that the one board member who came to me for help is not pursing this course of action. There is more than enough evidence that proves what he did, even a lawyer I went to stated so. However, if the new board does not want to pursue this action, can I still go to a lawyer and press charges, and if so then who is responsible for payment?
2. Do any of ya'll have any financial ideas of how we can avoid from The State taking over?
3. If the State does take over, then will they go back through the records to see where we went wrong, and hold past board members responsible?