Condo board used reserve funds w/o consent: damages/remedies

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Latest post Mon, Jan 30 2017 9:52 AM by ca19lawyer2. 4 replies.
  • Sat, Jan 28 2017 2:19 PM

    • CSE
      Consumer
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    • Joined on Sat, Jan 28 2017
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    Condo board used reserve funds w/o consent: damages/remedies

    I have a condo in a multi-unit building in North Carolina.  The governing documents of the condo association require that if the condo association's reserve funds are to be used for repairs of the building, notice to all owners must be given, and votes of owners of 67% of the condos and 51% of the mortgage holders must approve.

    I discovered today that a few years ago, the condo board used all $400,000 of reserves for repairs on the building facade.  People would probably have approved this expense (although people may have quibbled and gotten a reduction), and the expense was necessary; however, it wasn't done properly.

    Now that the building has no more material reserves, the board is increasing condo dues.

    Do the condo owners have grounds for complaint here, and against whom: the building (which doesn't really help us), or condo board members personally?  What are our damages: the amount of dues increase, perhaps?

    Thanks!

  • Sat, Jan 28 2017 4:51 PM In reply to

    Re: Condo board used reserve funds w/o consent: damages/remedies

    CSE:
    The governing documents of the condo association require that if the condo association's reserve funds are to be used for repairs of the building, notice to all owners must be given, and votes of owners of 67% of the condos and 51% of the mortgage holders must approve.

    Since this is a requirement of the governing documents that does not appear to be duplicated in state law, the penalties for noncompliance by the board should be laid out in those same governing documents.  But I'll go out on a limb here and guess that they aren't.

    CSE:
    Do the condo owners have grounds for complaint here, and against whom: the building (which doesn't really help us), or condo board members personally?  What are our damages: the amount of dues increase, perhaps?

    Definitely not the amount of the dues increase.

    To figure out possible damages, you'd have to think through what would have happened if the board had followed that requirement.  Obviously if 67% and 51% had approved, there would be zero damages all around.  But if fewer owners and mortgage holders had approved, then what?  Would the board have had the power to raise dues or make a special assessment back then?  If so, owners who have sold their units between then and now might have gotten a bit of a free ride at the expense of future owners, so some recent purchasers might be able to show damages.  On the other hand, if the board did not have the power to create a funding source at the time and would have been forced to leave the facade unrepaired, how would that have affected everyone's financial well-being compared to what actually happened?

    The Cliff-Notes version:  damages will probably be very difficult to determine.

    Who would pay those damages?  Possibly the board members, but in practice that would mean the insurance company that carried their errors-and-omissions liability coverage, paid for by the condo association.  If the board members were unpaid volunteers, as is usual, that is as it should be, morally.  Unless the board members personally benefited from their decision (for example, one of them owned the facade-repair company).

  • Sat, Jan 28 2017 11:30 PM In reply to

    Re: Condo board used reserve funds w/o consent: damages/remedies

    If the repairs were truly needed and if most of the owners would have approved it anyway then I see nowhere to go with this. You’d be pretty much in the same boat anyway; the repairs to the facade would need to be done and the HOA would still need to raise dues to build up the reserve again. 

  • Sun, Jan 29 2017 7:28 AM In reply to

    Re: Condo board used reserve funds w/o consent: damages/remedies

    I should add to my previous reply:  The plaintiff in any lawsuit you might file would have the burden of proof regarding damages.  I believe the uncertainty over how things would have turned out had the vote been held makes proving damages an impossible task here.

  • Mon, Jan 30 2017 9:52 AM In reply to

    Re: Condo board used reserve funds w/o consent: damages/remedies

    CSE:
    Do the condo owners have grounds for complaint here

    Grounds for complaint?  Obviously, you can complaint to anyone about anything.  Are you asking if the owners have grounds to sue someone?

     

    CSE:
    What are our damages

    It doesn't seem to me that you have any that can be proven with reasonable certainty.

     

    CSE:
    the amount of dues increase, perhaps?

    You concede that the use of the reserve funds likely would have been approved (albeit perhaps in a slightly smaller amount).  That means that the dues likely would have increased anyway.  Even if the funds hadn't been used, you couldn't prove that the dues wouldn't have been increased anyway.

    It seems to me your efforts would be better focused on voting out the board members responsible for this.

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