A condo that will remain anonymous has a unique problem that may not at first glance seem like a dilemma but let me assure it is. They have over three hundred and fifty thousand dollars in the bank. The bad news is that money is in an escrow account from renters in case their tenancy results in damages or fines. That’s a one thousand dollar deposit for each and every renter. It is interesting to note that the building only has three hundred units and let’s say it has 70% renters (210 apartments) as occupants. That means there is at least one hundred and forty thousand dollars that should have been refunded to the renters (minus damages) but never were, and are sitting in the association’s bank account.
Why such a dilemma? The reason being is that escrow accounts are fertile grounds for trouble waiting to happen. As a Real Estate Broker I do not touch escrow deposits and much prefer that this class of money be managed by an escrow company. I would Venture to say that of all the lawyers who are sitting in jail now a large percentage of them are there because of escrow accounts shenanigans.
Should the condo be requiring deposits for damages that may be caused by renters? The answer is, absolutely yes. This is key regarding condo and HOA financial issues. The problem is that this condo took the deposits from the hands of the renters and NOT the owner/landlords. Now, they are sitting with a bank account with $350,000.00 which means that $100,000.00 of this money is not insured, and the condo now has to go looking to refund the money or pass it on to the government. Could it be that this escrow account is putting the condo’s status as a not for profit in “harm’s way?” Go ask a lawyer but I know that nothing beneficial to the condo will result from this money.
The condo should be taking this money from the owner/landlords with an arrangement that stipulates that this money can also be applied against delinquent maintenance fees. Then when the renter moves the money should be handed back to the owner/landlord (less the damages) and let him/her return the deposit to their renter. The condo should be at arm’s length from other people’s rental business if they don’t have a writ of possession on a unit.
This condominium never held meetings to discuss issues like this because they had a one woman board of directors who held on to her tenure as president like a fat boy holds on to a piece of cake. This escrow mess only came to light when one determined lady in the building stepped up and ran a slate for a new board. Lots of bad business practices are now floating to the top. No way to manage condo and HOA financial Issues.
This escrow problem is the fault of the management company who should have advised the now former president of a proper way to manage these deposits, and have a move out policy that not only includes reserving an elevator but run down a checklist that would include a return of any deposits minus damages. Now, for the kicker…Over the last five years hardly a dime was held back for damages when any of the deposits were actually refunded.
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