Q. We believe that the president of the board of our association has borrowed and replaced funds from our reserve account. We have asked the board to review the association’s reserve account bank statements and the checkbook ledger to confirm that funds have been used properly. The president has refused to deliver financial records and the checkbook to the newly elected treasurer. The president maintains that she and the former treasurer lost most of the financial records the last two years and have supposedly requested duplicate statements from the bank. It has been more than a month since we have made this request.
Has the president violated her fiduciary responsibility if she has taken funds from our reserve account for personal use, even if those funds were replaced? What can we do to force the board to give us access to the financial records? Should I alert our insurance company? What is the responsibility of our management company in this situation?
A. If your claims are valid, the president has violated her fiduciary obligation to the association by breaching the duty of loyalty to the unit owners. Her claim that the funds were paid back is not a defense. This action was a violation of her trust to the association. The remaining directors and management should take steps to obtain the original records by first demanding them, then filing a civil lawsuit and contacting law-enforcement authorities.
Owners have a right to inspect the books and records of the association for the purpose you describe. You should contact an attorney to make a demand under Section 19 of the Condominium Act. This section permits an owner to file suit and recover attorneys’ fees if the board does not respond to a legitimate request for inspection of association records.
The association’s insurance policy is coverage the board must obtain. The remaining board members and management should contact the insurance carrier who has issued directors and officers liability insurance and provided the association with a fidelity bond.
Q. Our condominium association was converted almost two years ago. Two units still belong to the developer. When owners bought their units, the developer told us that the roof on the building was new. We have discovered that the roof is leaking and consists of four heavy layers causing depressions in the structure.
As a result, the board has decided to replace the roof and levy a special assessment for the expense. The developer refuses to pay the special assessment.
What recourse do we have? A lien would probably not matter to the developer, because he is not in a hurry to sell either unit. Our roof desperately needs to be replaced, and the association does not have funds to cover his share of the cost.
A. The board should file a lien against both units, because at some point the developer will sell them. Section 9(a) of the Condominium Act requires a developer to pay assessments on unsold units. The board may treat his units like any other delinquency. Retain counsel to issue a demand for possession and follow the demand 30 days later with an eviction lawsuit. When the association obtains a judgment, the board may take possession of these two units and lease them for a period of 13 months. The rents the association receives for the units will help to finance the roof replacement.
The board should also consider obtaining a line of credit from a bank to finance this needed repair.
If your property is in Chicago or another municipality with a condominium ordinance, call city officials to investigate whether the developer violated the law by failing to prepare and deliver a property report. The report should have disclosed the true condition of the roof and any representations of the developer to replace it.
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Write to Mark Pearlstein c/o Condominiums, Real Estate Section, 4th Floor, Chicago Tribune, 435 N. Michigan Ave., Chicago, IL 60611. You may e-mail questions to realestate@tribune.com. Sorry, he can’t make personal replies.
