Checks and Balances Keeping Boards and Their Vendors Honest

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.

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5 Comments

  • Are apartment co-op owners allowed to ask co-op president of the board questions regarding their rights on doing renovation in their apartment.
  • My co-op board does not have fidelity bond coverage. the attorney says it's not a state requirement. Is that right?
  • I have requested explainations of some expenses that I think are quite high for a coop of our size. The board refuses to answer me. When I requested to see the general ledger for the year the board rejected my request even though it is written in our by laws and also in the bcl. what can i do.
  • Coops should be investigated as part of the mortage fraud especially if they don't owned the land where the coop apts are. they have expiration date and on that date all shares have to be returned to the owner of the land like some luxury coop apts ini Riverdale (the bronx) NYC. The landord got its money and will get everything back at the exp. date. the first buyers sold at very high price. the bank got their money from these buyers. buyer never knew they where buying nothing since at the end they have to return it. As the exp. date approached buyer can't sell because bank are not going to lend since they don't have time to get their money back. buyers just finish paying the bank and now they have to surrender the shares to the onwer of the land on the expiration date. A complete fraud.
  • Distressed Owner on Sunday, May 5, 2013 12:42 AM
    Our condo board president put up his own money as a loan to the association and quickly hired contractors without bidding, they did the work - instead of getting a loan from the bank and compare bids - and is now charging interest - threatening to put liens on units if people do not pay him. "I want my money" he says. Is this legal?