Association cannot legally keep surplus rental payments
BY DAVID M. BENDOFF
Q: Our association took possession of an owner's unit after an eviction for nonpayment of assessments. The unit's delinquency has been paid off, and the association continued to lease the unit because the owner's whereabouts were unknown. This resulted in the collection of more money than is due to the association.
We recently learned the owner died, and the estate has a contract to sell the unit. Who is entitled to the surplus; the association, the estate of the deceased owner, or the purchaser of the unit?
A: The association is in an admirable position to have had the unit's delinquency brought current through the eviction process. It demonstrates the value of an aggressive assessment collections procedure.
Ultimately, the surplus belongs to the current unit owner, which in this case is the estate of the deceased owner. The surplus does not belong to the association or to the buyer of the unit.
Q: At the recent annual meeting of our association, there was some question raised regarding the procedure used to elect new officers of the board. The moderator of the meeting asked for nominations for board president. A nominee was named and a second was made. The moderator immediately asked for a voice vote on the nominee without asking for any additional nominations. The moderator proceeded to fill the other officer positions in the same manner. Is this a proper procedure or does it violate some legal or reasonable practice?
A: There is more than one way to address the election of officers for an association. You describe one. Another way would be to solicit candidates for a particular board position and each board member can vote for the candidate of their choosing. This would be repeated for each officer position.
Q: Our condominium association prohibits pickup trucks from parking in the parking lot. I have a late model pickup truck that is used for personal use only and looks better than half of the cars in our lot. Is this legal?
A: The answer may depend on how this prohibition has been established. If in the declaration, it is likely going to be enforceable. If the declaration described prohibited vehicles, and pickup trucks are not included, establishing prohibitions for additional vehicles by rule is likely not going to be enforceable. If the declaration is silent on prohibited vehicles, the board could establish rules that prohibit certain vehicles; however, such a rule must be "reasonable" to withstand a judicial challenge.
I can't recall where I read this on the issue of vehicle prohibitions, but it went something like "One man's pickup truck is another man's luxury vehicle."
Q: Your article about borrowing money from the association's reserve fund and putting it into the general fund to pay bills is OK, but what happens to an association that borrows the funds and does not pay it back in a year?
A: I previously noted that an association can borrow money from reserves to fund operating expenses, and that the transaction needs to be memorialized in a promissory note. However, I did not address the repayment period. That would be a term to be determined by the board.
A board that does not repay the loan is essentially commingling operating and reserve funds, in contravention of the holding in the Palm appellate court decision. This would be a breach of the board's fiduciary duty. The potential remedy might be a court order directing the board to repay the loan, and damages for such a claim would be the interest not paid. Whether litigation is a practical route might depend on whether there is a pattern of breaches of fiduciary duty or if this was an isolated incident.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.