Fraud? No, Just a Scam: How Co-op & Condo Boards Can Avoid Little Rip-offs

I thought of Racket Squad the other day as I listened to a managing agent tell me about a scam perpetrated against one of his buildings. The board had paid a mortgage refinancing company $5,000 to get a special deal, and later found that it was a castle built on sand. The scam apparently worked because the paperwork was quite convincing and the professionals were kept out of the loop by appealing to the “let’s make a deal” nature of many boards (the scammers suggested that the manager not be consulted because “he’ll charge you a fee”).

Captain Braddock (played by Reed Hadley) would have had a field day with Michael Richter, too, the former management executive who was arrested and charged with all sorts of embezzlement crimes. In a perverse example of “Don’t ask, don’t tell,” the boards that he scammed, and even the agents who worked for this alleged bunko artist supreme, didn’t ask too many questions. Why should they? Richter seemed trustworthy. He was certainly affable.

It's the Little Things

A scam doesn’t always have to involve big bucks, either. Sometimes, it can be as simple as misleading the board about who’s staying in the apartment you own or taking advantage of a board’s neighborly nature.

After illegally subleasing her apartment, for instance, one owner I heard about was two months behind in her maintenance. There had been a notice of non-payment and a $50 late fee charge sent to her not once, but twice, along with an e-mail communication from the board. After the second e-mail went out, warning her of legal action, she finally responded, saying that she had been too busy traveling to notice the notices and that her bank was supposed to automatically send in the maintenance checks, anyway. Sorry about that — but hey, she added as though responsibility were not a word in her vocabulary, “Could you send me a personal reminder if I’m late again?” And, “Could you also waive the late fee?”

Can you spell chutzpah?

Slamming the Scammers

So, how do you deal with these more common little “scams”? By acting quickly and getting tough, say professionals.

The shareholder in the above story had been notified twice concerning the issue and didn’t have a very powerful excuse (“Um, I forgot”). Attorney Mark Hankin, a partner at Hankin & Mazel, is quite clear on this point: “You should definitely not waive any late fees, since it negates the purpose of the fees. Once you do it for one person, you have to do it for everyone; otherwise you are open to charges of favoritism or discrimination. People can refuse to pay late fees because of the board’s previous actions. And they would be upheld in court.”

Now, if you have already waived the fee, you can’t rescind the action (without causing more trouble than it’s worth), but you can send out a letter re-stating the late fee policy, saying from that point on there would be no exceptions to the rule.

Hankin’s advice is sound but may have come too late for this particular board, which, in the spirit of being a good neighbor, waived the fees, saying rather toothlessly, “Hope it doesn’t happen again.”

It’s that kind of friendly attitude the scammers count on. Captain Braddock would have been appalled.

Adapted from Habitat September 2010. For more, join our Archive >>