Hi Ed,

Is that a per year amount? That sounds real low. As of 12/31/2011, we had $959k in prepaid expenses, reserves and voluntary self escrows or close to $8,640 per unit. This exceeded our yearly revenue, yet, we consider this amount to be low.

New regulations from Freddie Mac and Fannie Mae state a target of 10% of revenue per year in order for them to approve mortgages for new buyers. As a result, we are phasing in a permanent assessment at 2.5% of maintenance per year so that we reach 10% within 4 years. While the regulations are currently on the books and enforceable, we have other money flowing to reserves this year to cover the 10% (treasury stock sales).

Each complex is different. I would feel better if my co-op had at least $10,000 per unit in reserves.

Steve

All of the above is incorrect ! This is a basic simple matter that has now been enforcable for 36 months...

not to be 'debated'

Back to the point - i am told it is the norm with UWS coops to basically keep about 6 months of operating costs in their reserve and this is just fine. $8,600 per unit sounds out of wack. Unless you are talkign about something else.

Its ok, my board and the sponsor do not belive we should increase reserve fund or make provisions in the budget to upgrade our building. When asked how this will effect sales, they state that "we will cross that bridge when we get there". So in the end, unlikely to sell our apartments. Stay tuned could be a good legal case in a year from now.

Do you have proof, or are you going to continue to provide irrelevant responses?

Steve- There is an interesting reprint here (http://www.czarbeer.com/pdf/C&B-Habitat-1110.pdf) of a Habitat Magazine article about the Freddie Mac/Fannie Mae 10% reserve requirement. According to the article, the 10% requirement is for condominiums only, and does not apply to co-ops. It also originated in Florida, where the financial stability of condo developments is much less secure than it is in NYC.

In an article in The Cooperator (http://cooperator.com/articles/1948/1/New-Rules-for-Co-ops-and-Condos/Page1.html) it states, "Capital reserves must represent at least 10 percent of the budget." This is not the same as 10% of revenue per year. Although a capital reserve balance equal to 10% of the annual operating budget is very low (33% to 50% is much more fiscally prudent), tacking on a 10% surcharge every year for the capital reserve account seems like an unnecessary burden unless you are anticipating large capital expenses in the next 5 years or so.

Can you provide any links to where you read the requirement was 10% *per year*? This is something I am very interested in. Thanks!

Hi Steve,

I have tried reading the Selling Guide myself and I have also heard the of the Florida and condo connections. I cannot yet link the condo standards to be the same as co-op standards. I have e-mailed Fannie Mea and I will share their response here if and when I get it. That being said, the real estate professions writing on the topic have equated the two.

Assuming they are the same then, in my mind, there are two distinct topics: the regulation; and then the enforcement. If the regulation is there then we should be aware of it as Board Members. If we decide to ignore it (or we don’t know of it), we risk breaching our fiduciary duty and open ourselves to legal actions.

The enforcement is out of our control. The authorities will enforce the regulations as they see fit. For me, I do not want my shareholders to be the test case if the authorities decide to enforce here in NY, NJ and CT. To me, that is a harder discussion to have with my shareholders (buyers for units can’t get mortgages) than hey we have to raise reserves (we really all know it anyway).

I work in accounting and finance at a very large insurance firm. One of the tests for risk we use is “do you really want to have some issue playing out in the press” (press here could mean “the press” or shareholders)? If you don’t want to face that potential outcome, you avoid it.

Habitat Magazine published an article on the topic called The Loan Arranger: Top Fed Guidelines Co-op / Condo Boards Need to Know by Jennifer Hughes.

I have also inquired with Fannie Mae about the 10%: if it is a minimum or an annual amount to be accumulated if not used. In my co-op we have capital projects every year. Even if we didn’t, it is in the best interests of the shareholders to reduce costs. Accumulating funds ahead of time for a capital project lowers the project’s costs due to reduced borrowing needs. In my co-op, we have taken all of this to mean an annual funding as there will always be something to repair. Finally, we don’t want to be just a “minimum” requirements” community. Whether in finance or building operations, we just don’t want to live that way.

Great questions and sincerely,

Steve

Hi Steve - Thank you for the information and your analysis. Your insight is very helpful.

I had been hearing about the "10% rule" and always assumed it meant that the Feds were finally requiring condos (and I guess co-ops by extension) to accumulate at lease *some* reserve funds. We read on here and in the property management press like Habitat and Cooperator about enough buildings that don't have any reserves and the problems they get into. It seemed like the Feds were using the hammer of not approving loans to convince these buildings they really needed to create a reserve fund of at least 10% of their annual budget.

We do not have a capital project every year (whew!), so I now understand why you must keep replenishing your reserve fund. Unfortunately I have board members who think the operating account and the reserve account are interchangeable, so I have to keep large amounts in both so expenses can be paid from the proper account without having to shift money around.

Please post any responses you get from Fannie Mae about the interpretation of the 10% rule. I would like to know what they mean, and I am sure others on here would also like to know.

--- Steve

Hi Nancy - I am not a lawyer, so this is not legal advice. The first thing I would do (I'm in NY and the process in FL may be different) is contact an attorney who is familiar with condominium law. I know the last thing you need is to incur lawyer fees, but from what you wrote I don't think you have much choice. You may be able to recover these fees under certain circumstances, but that is something the attorney will be able to advise you.

DO NOT approach any of the people you've spoken to who seem to be on your side for statements or other documentation until you've spoken with an attorney. There are legally prescribed ways of obtaining statements that can be used if you have to go to court. If you try to do it without legal advise you may render your supporters' statement ineffective. There will be time enough to get statements if your attorney thinks they are necessary.

Good luck!

It will be an easier sell if you forget the code & sidestep the lawyers. Instead, have your insurance underwriters inspect; it costs nothing, & they'll likely confirm that combustible materials are a problem here, & advise how much your premiums will increase if not removed. [See-through units will make owners think twice about storing materials which seem harmless--e.g. oil-based paint--but actually create risk & are disallowed.]

Hi pk. I've never heard of a co-op or condo having a formal dispute resolution committee. It doesn't mean they don't exist, but in my opinion, dispute resolution is a function of the board.

Can you provide some additional detail about the kinds of disputes a committee would handle? Are they disputes between just shareholders, or disputes between shareholders and the board?

Also, can you give us some idea of the size of your coop; number of apartments/buildings, etc? I can see a board-appointed committee triaging inter-shareholder disputes in a very large development, but acting more in a fact-finding capacity than as a final arbitrator.

I may be wrong, though, since I've never seen a co-op with such a committee.

Steve,

Alternative Dispute Resolution is meant as an alternative to litigation, ie if perhaps a shareholder feels a coop or condo Board is not treating them fairly with regard to bylaws and rules or a discretionary board action or there is a dispute between two shareholders. The committee may not consist of any Board members to settle the dispute. Both the NJ Condominium Act and the Planned Real Estate Development Full disclosure Act require associations to provide a fair and efficient alternative to litigation for unit owners to resolve disputes btwn one another or with the association. The Association Regulation Unit of the NJ Dept of Community Affairs has the authority to require common interest communities to adopt ADR procedures.

At any rate, I'm looking to see if there are any coops in NJ that use ADR in their communities to compare notes. A friend of mine in CA has ADR at her condo association. Thanks for responding though!

Hi PK. Thank you for your explanation of the Alternative Dispute Resolution. It's a very interesting concept for condos, where there is essentially private ownership of each condo unit in a development. This is the first I've heard of ADR, and I've now learned something new. Thank you for taking the time to respond.

Very interesting concept. Does anyone know if there is something similar in New York.

PK
If you like we can provide you with some guidance on setting up your ADR processes/committee for your organization.

We are an alternative dispute resolution provider that works with insurers, municipalities and other entities seeking to create similar ADR programs and offerings.

We have panels of mediators and arbitrators in all states to include NJ that can handle disputes when they arise.

Initially I would suggest you consider creating an ADR clause in your co op and condo members agreement calling for mediation. I can provide you with some samples of ADR clauses if you like as well as info on deigning a dsipute resolutin process or conflict resolution team and mediator training if desired.
It would be helpful to know what sort of ADR offering are program you are interested in.Feel free to call me if you would like to discuss further.
Hillary Earle
Amicus Mediation & Arbitration Group
631.881.0882

and who exactly is steve rosenstein who SEEMS to answer and 'have an opionon' on all these ' questions' ?

Hello/?

If you can't offer information assisting the question, then keep your poorly written responses private.

Hi mo - The first thing I would definitley do is contact the board's attorney, and as soon as possible. There are legal implications when dealing with a hoarder and the possible need to discard some/all of the material in their apartment. Here is a link to a very recent article in Habitat Magazine about this: http://www.habitatmag.com/archive/p_view_article.php?article_id=4300.

Hi Michele,

My firm does both back-office and full-on management, depending on your needs. You can check out our website at www.ebmg.com or you can contact us through e-mail at mblevine@ebmg.com or 212-502-7048 x.201.

Hope that we can help!

Contact me at 718 961 2100

When you get references re management companies don’t just ask the board that hires them but ask longtime residents in the building and never never let your management firm hire your accountants or law firm or there will never be any checks and balances.

In my business as an energy broker/consultant, I have the opportunity to work with many different management firms. I suggest New Bedford Management @ 212-674- 6123 or Rick Elezi Management 212 260-8060 for your size building. Both are very good firms.

Hi Michele - I cannot make a specific recommendation, however there was a recent article in Habitat about Back Office Only operations. Here's the line: http://www.habitatmag.com/archive/p_view_article.php?article_id=4251. I hope this is of some value to you.

Hi Maureen,

Count your blessings that you only have one! :)

Seriously, if you have a manager, have them deal with the shareholder. This way their file will contain documentation in case you have to go to the next enforcement level: court. Also, if there is smell, there might also be vermin which can and will travel throughout the complex. If vermin are present, you face a long amount of time to eradicate them so act quickly.

The problem with having the shareholders getting directly involved is that the issue may not be resolved. Then the shareholders will feel empowered to call the City and you will now have violations on the building. Then you will still not have the necessary documents saved for a court case which will delay enforcement.

If you don’t have a manager, well this is the glory you signed up for when that decision was made. Have no less than two Board members go and approach the offending shareholder.

Good luck!

And... if that apartment-with-smells happens to be a holdover rental (rent stabilized) from the conversion process and is owned by the Management company/sponsor with an original rental tenant?

One thing to consider if the apt. is on the ground floor/lobby—check the garbage shut. We had something similar in my building. It smelled FOUL! And first we thought it was one apt., then another... couldn't exactly pin it down. It ended up that that garbage had collected in the trash shute and it was rotting in there.

If the tenants affected want to approach the neighbor, they certainly can, but it might not be effective. I don't see that it's the Board's job, though. Your best, kindest, and safest approach is to have management handle it. All the neighbors who are affected and taking issue can complain to the manager, giving the argument more weight. But then the request, or dictate, to find and clean up the offending odor should come from the manager of the building. Also consider that something (vermin) has died and is rotting in the walls, causing the odor. Perhaps that tenant is as disturbed by it as is everyone else?

Hi Diana,

Have you looked at the terms of your Proprietary Lease? The responsibilities of the Shareholders and the Cooperative should be laid out pretty clearly in that document. After reviewing your responsibilities in the apartment, you should be able to discern if the Board is not acknowledging a repair that should be their responsibility or if it is up to you to fix (i.e. interior decorative items, windows, etc.)

Hope that helps.

Mark Levine
Excel Bradshaw Management Group, LLC
www.ebmg.com
mblevine@ebmg.com

To whom it may concern:
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