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Hi,
I had a similar situation with a building that I took over management of last year - the previous management company wasn't paying water or real estate taxes. I went to the Water Dept. with my hat in my hand and we were able to make out a payment plan to stop the penalties that were accruing and to budget it out on installments so that it would be less of a burden on the Board.
Finding a new company may indeed be the way to go. These are expected expenses that should be escrowed every month and no coop should be left without paying the real estates, insurance and water.
I like Mark’s answer. Assuming that the co-op had the funds available to pay the bills, I would say that the management company should pay whatever penalties and interest were ultimately paid to the water board, after negotiations.
It's reasonable to ask them to pay for the outstanding charges - but there may be an issue with you collecting. If they refuse, you could go to another company. If you go to another company, they'll have to be sued to recoup the losses.
If you go to another company and they refuse to pay, it might be worth taking it on the chin, learning the lesson and then moving on. You'll learn, as a Board, to check up on these things in the future and not let them get out of hand such as this. The budget should be made at the beginning of your fiscal year and from that budget the escrowed amounts will take shape. From hereon in, escrow out 1/12 of the major expenses so that you don't have this happen to you again.
If they refuse to pay and you move on, you'll have to do a cost-benefit analysis to see if it is worth it to pursue legal and the various costs that this will bring.
Hope that help and reach out to me if you want to speak more privately about the matter.
Mark
This was a good question and answer so I took this and made it into a video response for our YouTube channel.
http://ebmg.com/2014/06/question-answered-our-property-manager-screwed-up-our-water-payment-and-now-were-stuck-with-penalties-and-late-fees-what-can-we-do/
Thanks Mark and others...so, the management company did own up to the error...and agreed to pay for the late fees/interest...but no go on paying for the bill. They did however organize a payment plan with the DEP (unfortunately, we have to dip into our reserve a bit). The company has a comptroller (finally) and actually is doing what some of Mark suggests in the video (thanks for that, too). Lessons learned...though we are still in the market for a new management company. Mark how can I reach you?
Hey, you can email me at mblevine@ebmg.com or directly on the phone at 212-502-7048 x.201.
We had that situation a few years ago, management company did not pay our total withholding taxes for 6 months +, our union dues, our RE taxes, etc - This eventually cost us at least $300,000+; Our former accountant and certain board members said they knew about the withholding taxes but did nothing about it - the Union dues not being paid was a secret and in minutes said it was because of not paying for the guards which was not true. All I know is that the management company had all our money and by contract was obligated to pay our bills, especially withholding taxes,
RE and union dues. I don't know if putting the money into escrow helps, it all depends who has access to that account. When management does not pay the bills and the building has the money where did that money go, but our coop would not sue the management company. I definitely believe that they should have been sued because we not only had to pay what was owed but interest and penalties and with 32BJ that is over 100% - I believe you have to go through the managements insurance company - but they definitely should be sued. Unfortunately there is no agency that will help in this situation; getting NYS to license management companies would be a big plus; now they are only licensed as RE brokers
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Hi Mark...thanks so much for responding. Is it reasonable to ask the management company to pay for the months that they failed to pay and to recognize? Or, is ultimately up to the board to catch those errors? I feel like they need to pay for this...but my husband says that it is on us, as as a board, because, as you said, we should have set the money aside...and perhaps been following more closely...but we never really get notices of when things come in and when they are paid. What do you think?
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