Hiding from reality
“They deem
him their worst enemy who tells them the truth.”
—Plato
“In an age of universal deceit,
telling the truth is a revolutionary act.”
—George Orwell
There are some condos that are so poorly managed, so poorly
maintained
and are in such serious financial troubles that they are virtually
bankrupt and yet the directors and some of the owners feel that,
although they are having some short-term difficulties, all is well.
There is nothing to worry about.
How
bad can it get?
In the west end of Toronto, there is a condo apartment tower that has
had water penetration through the building envelop since it was built
30-odd years ago. The builder gave the corporation some money as
compensation but that money was not spend on repairs so the leaks were
never fixed. Now, a third of a century later, about a third of
the units have serious water leakage and mould problems. (All of the units are on the east side of the building.)
The building has a serious cockroach infestation problem that
is being
ignored and the corporation is not paying its shared facilities expenses. The utility
bills and the contractors are paid late.
The reserve fund is woefully inadequate and is regularly tapped to
support the operating deficit. The roof anchors are unsafe and the
board needs to spend $500,000 to $1,000,000 to fix the exterior
brickwork. They have around $13,000 in the Reserve Fund but the board
tells the owners they have $300,000.
This year (2012) they had an AGM, after not holding one for the last
two years, and they have released no audited financial reports in the
last five years. The owners don't know how bad the situation is and
their board doesn't want them to know.
Yet, with all their problems, the two-bedroom units sell for over
$250,000. The purchasers see a pleasant looking front lobby, clean
elevators and clean hallways so they think everything is in order.
Their real estate lawyers don't pick up on the bad financial situation
that is described in the
status certificate and there are no warning signs of trouble until
after they have moved in.
How
do they get away with this?
The board hired a small property management company that is happy to
have a contract. Then they tell the owners that
they can't provide audited financial statements because the previous
managers
lost or destroyed the records.
Very cute!
Who
benefits?
The low-income owners who want low monthly fees. The board refuses to
listen to the
manager when he tells them that the monthly expenses must be raised and they
need to
arrange for a loan or special assessments to make the necessary
repairs. If the manager gets too insistent, they will replace him.
Why
they won't listen
The owners do not want to pay, or can
not afford to pay, an extra $30,000 per unit in special assessments, or
a loan,
plus pay extra monthly fees to maintain the property.
Most of the seniors and low-income owners strongly support the board
because their fees have not been increased for the last seven years so
the board has a lot of support.
How
can this go on
The disgruntled owners are too few in number. They do not have the
necessary political support to remove the board nor do they have the
money to take the corporation to court.
Further more, the owners are split into different ethnic groups so they
have trouble
working together. The owners know that the condo is not being run
well but they have no idea how bad things really are.
There are a lot of seniors in that condo and more than anything, they
want—or need—their fees to stay low.
Finally, no one wants the real estate agents, potential buyers or the
banks to learn the true condition of their building as property values
will sink and they could lose up to two-thirds of their equity.
The smarter owners—the ones who can afford to leave—are selling, one
owner at a time. Many are stuck there because they do not have enough
equity to buy elsewhere.
Eventually, the city inspectors will be made aware of the water
penetration problems and they will issue work orders. That is when the
board, and the owners, will be forced to fix their problems.
Chickens
coming
home
Eventually, the blindfolds must come off and as the owners at Las
Brisas, an aging condominium highrise on Bathgate Drive in Ottawa found
out in December 2013, reality can be quite a shock.
They got hit with a $53 million special assessment, roughly $40,000 to
$66,000 per unit.
Time is
running out
A posting on the
city's website
It looks like this condo's financial problems are catching up to them.
This is the second time in two years that the city has threatened to
disconnect their hydro unless they pay up.
What
can be done
Anyone in the market for a condo needs to be aware of the dangers of
buying into a troubled building. Reading and following the buying tips on this
website could help keep an
informed purchaser from buying a lemon.
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