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New Condo Board: Transition Is Important

Written by on Wednesday, 28 September 2016 2:07 pm
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Question: I have just been elected President of our new condominium. Our new board of directors have just taken over from the developer, but frankly we are at a loss at to where and how to go. Any suggestions? Harry,

Answer:Harry, my condolences. Being a board member is not fun; the hours are long, the pay is zero and no-one ever thanks you for your hard work. They do, however, complain a lot.

What many condo owners -- especially first time home-buyers -- do not understand is that many associations are big businesses, with budgets in the millions of dollars. Unless owners get involved, learn the process, and hire competent professionals, the association may be headed for disaster -- financially as well as emotionally.

A condominium comes into existence when the condo documents are recorded among the land records in the county or city where the property is located. The developer selects the first board of directors, which manages the association until turnover of control is accomplished. In general, the laws in the surrounding jurisdictions require that control be turned over to the owners within so many years after the first sale, or when a certain percent of the homes have been sold, whichever comes first. The turnover requirement is spelled out in your association's governing documents.

Transition between developer and owner control is perhaps the most important aspect of any community association. If done properly, the association will be off to a good start; if done poorly, it may take a long time to get back on track. And some associations never succeed.

Once the owners are in control, there are four mandatory steps that must be taken by the new Board:

1. Select a management company: The new board must decide whether to retain the existing management company -- which had been selected by, and may be too loyal to, the developer -- or select a totally independent management company. The association may decide to forego hiring such a company and become "self-managed", but I personally do not recommend this, even for a small association. If the board gets involved in everything from collecting condo fees to arranging to shovel snow and cut the grass, burn-out will take place quickly, The board's role is to make sure that management is doings its job and reporting monthly to the board.

2. Audit the books: An independent auditor or a certified public accountant must examine the association's books. It is important for members of the new board to satisfy themselves (and the owners they represent) that during the time the developer was in control, all moneys collected and all expenses paid have been properly accounted for. Keep in mind that while the developer is in control of the association, the developer also has access to the association funds. You want to make sure that funds which should have been paid by the developer are not inadvertently (or purposely) paid out of association proceeds.

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  About the author, Benny L. Kass

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.