Coming Back from Corruption

Getting fleeced. We started managing a 22-unit condo building in Fort Greene, Brooklyn. During the transition, it became apparent that the previous management company had been stealing. Their method was to take funds from the operating account to write checks to vendors, contractors and the insurance company, and record the bills as being paid in full on the monthly financials. But in reality, they weren’t paying the full amounts and were pocketing the difference. 

Future shock. According to the previous management’s records, the condo had $50,000 in their operating account, but we discovered they only had $5,000. And there was no money in the reserves. But there was a lot of maintenance and repairs that needed to be done. After years of neglect, there were elevator problems and issues with flooding on the roof, and the work that had been done didn’t address the source of the problems. For example, on the roof the gutters are hanging down from the bulkhead, which is causing water damage to the apartments. 

Payback time. Going through the accounts, we determined that the condo owes more than $20,000 to the vendors. So we worked with the board and came up with a budget. We’re doing a 5% assessment for the next three years, which will allow us to pay the money owed to the vendors over the next four to five months. Luckily, the condo has a good relationship with these vendors, which is why they agreed to letting us stretch out the back payments. The assessment will also help build up the reserves.  

However, if there are major issues or expenses that come up during the next four to five months, we’re going to have to go down the financing route. We’re working on getting preapproved for a loan, but hopefully it won’t come down to that. We’re kind of taking a touch-and-go approach over the next few months and praying that everything holds up and goes as planned.

Back on track. For now, we’re still trying to get a handle on the budget. We’re going to replace vendors who have worked with the condo for a long time but don’t offer the best terms. Once we sort that out, we’ll have a better idea of what operating expenses will be going forward. And if expenses go down, we’ll be able to keep common charges the same.

Word of mouth. Fort Greene is like a small town, and the board spoke to other condos in the area that were managed by the same company. And they found that those buildings had the exact same experience. It’s in the discussion stage, but the condos are talking about forming a coalition to pool funds, hire a forensic accountant, and possibly start a class-action suit. But it’s possible that the condo we’re managing will just cut ties and move forward and try to do better with us.

Attention must be paid. In terms of buildings that have found themselves in financial trouble, I’d rate this a 7.5 on a scale of 10, with 10 being the worst. The board had been too hands-off, and the funds vanished. Bottom line, boards need to be involved and keep close tabs on their financial position on a monthly basis.