Your co-op or condo is your home but it's also a business with vendors, contractors and a board of directors that sets guidelines affecting everyone. As in any business, there exists the potential for theft and fraud. While there are no fool-proof methods to prevent wrongdoing by board members and the professionals and vendors they do business with, there are checks and balances that can be put into place to help keep everyone honest.
Sitting on the Board
The board of directors, especially the president and treasurer, are in positions that are ripe for abuse. According to the president of a 200-unit co-op downtown, the former president who served for ten years had become a dictator. If you crossed her, you jeopardized your place on the parking space list, you might not be permitted to sublet, and she could make selling your apartment a nightmare.
On top of all this, the marble in her apartment was suspiciously installed simultaneously with the lobby's marble. She was suspected of regularly submitting fraudulent invoices for reimbursement and sources claim she demanded kickbacks from building vendors. However, no one could prove any of these allegations against the board president because she held all the reins.
To avoid such nightmarish scenarios, the co-op's new board president swears by term limits for board members, especially for members who have authority to contract the services of vendors and professionals. "If you know that someone will be looking over the books in two years," he reasons, "you can't be quite as blatant. You also must have a strong managing agent who will say, 'Listen, I'm not going along with this.' "
Some years back, an Upper West Side co-op was in receivership due to a mortgage dispute with the building's sponsor. During the same period, the co-op was losing tens of thousands of dollars in revenue from the garage beneath it, which had a 15-year, far-below-market value lease. On a hunch, the board president checked the public estate records of the deceased owner of the building, and found what resembled a kickback. The documents showed the property owner had received $100,000 from the garage owner. It had been recorded as a loan repayment. Coincidently, the garage's first "loan" payment came due the day the lease began.