Normally, a co-op, condo, or HOA management team is well-equipped to handle a wide variety of day-to-day matters, like leaky roofs and faulty garbage disposals. There are other bigger issues—such as embezzlement and fraud—that require outside professionals well-versed in traversing these specific problems.
“Unless a board or managing agent has experienced the exact same situation before and it was resolved by them successfully, to the benefit of the cooperative or condominium, they should consult with someone—whether it is an attorney, accountant or engineer,” says Attorney Eric Goidel, a partner with the New York-based law firm of Borah, Goldstein, Altschuler, Nahins & Goidel, P.C.
“Clearly, anything that can give rise to any kind of litigation, any chance of criminal prosecution, any chance to file an insurance claim or anything deemed to be a breach of fiduciary duty by a board member or managing agent should immediately be brought to the attention of the appropriate parties,” said Goidel.
According to New York’s Business Corporation Law (BCL) section 717, the directors of a corporation must perform their duties “in good faith and with that degree of care which an ordinary prudent person in a like position would use under similar circumstances.” In other words, board members have, as Goidel noted, a fiduciary duty to shareholders and unit owners. And while the instances of fraud and embezzlement might seem uncommon, one only has to follow a paper trail if financial problems are realized.
“When it comes to finances, many co-ops simply depend on the management companies and in most cases that is fine,” says Andrew Brucker, an attorney and partner with the New York-based law firm Schechter & Brucker, P.C. “We have a number of clients that have big sums in the reserve that hire third party experts to tell them where their money should be—but it’s often not necessary as nobody should be gambling or investing with this money.”