Dear PoP – Condo Developers Went Bankrupt Help Please

Photo by PoPville flickr user elliotmitchell

“Dear PoP,

Our new condo building has been going through some changes. 5 of the units have been sold and have owners. 3 of the units were rented by the developer and have tenants. A few are still not occupied and for sale. We learned recently as of early January that the developer lost the building to the bank and the bank now owns the 3 rented units as well as the 4-5 unoccupied units. I called the bank’s attorney and as expected, they do not want much to do with the management of the building. Then, the developer showed up this past Sunday at our door, and requested that we pay him our condo fees.

I feel quite skeptical about handing the condo fees over to the developer. He claims he still manages the building and that he may be getting the building back (we don’t believe him). I’ve contacted the title attorney about condo fees as well and he does not provide us with a straight answer. Aside from not knowing where the condo fees should go, we are worried about trash removal, electricity, etc. being cut off. Our condo docs say that we need 75% of the building to be owned in order to establish a condo association. I’m wondering if you or anyone out there might know our rights in a situation such as this?”

This sounds awful. Anyone deal with a similar situation and have advice?

28 Comment

  • Get a real lawyer before you give anyone any money.

    I would start by looking for real estate clinics at Georgetown, GW, etc. If they can’t help you, which may depend on your income, get a real lawyer.

    If you don’t have the time to do or the lawyer needs time to answer put this month’s fees in an escrow account.

    POP it’s borderline irresponsible to post this because it suggests that commentators will have the right answer. Generating a list of the various clinics/legal aid societies would be a much more useful thing to post.

    • actually have the answer, because they went through the same situation. I fail to see why POP is being irreponsible here.

      I think that this website is a very valuable resource. At the very least, it informs you of what you’re up against.

      POP – keep up the great work.

    • I fail to see how PoP posting this is being irresponsible. A person is asking for advice on a problem. If they assume something they read on a blog is the absolute truth on the subject, that is their problem and doesn’t show a high degree of intelligence of responsibility on their part. Although not everything people write here or anywhere else can be completely trusted, it might point the person with the question in the right direction or give them a sense of the options so they can look into it further.

      In fact duh, you did exactly that in your post. You gave your opinion about what they can/should do and suggested a way for them to investigate that option further. I don’t see what the problem is.

  • I apologize I left out a this in the post above. I assure everyone that I went to college.

  • Sorry for the triple post but this kind of thing drives me nuts.

    There are people who know the answer to this question. This isn’t some kind of exotic legal question involving anything new, condos have gone into bankruptcy before.

    Unless POP can verify that the people who will post an answer know what they are talking about allowing a response other than get a lawyer is extremely irresponsible.

    Glover Park Forever.

    • I thought BLOGS were opinions… not expert advise columns

      • That’s whats so bad about this. There is a single, simple answer to this question. Pay the fee to X. It’s black and white, and unlike the black and white issues that are usually discussed on this site opinions aren’t really helpful here.

        I wouldn’t have sought out POP’s help in this case, but since someone did there is only one responsible answer.

    • I so agree. The only thing that will resolve this situation is if you wear your underwear on the outside of your clothes and run around your block ten times while juggling torches and yelling “Scheherazade.” Don’t listen to anyone else! I am an expert!

  • The reason the title attorney didn’t give you a straight answer is becuase 1) he couldn’t, you’re not his client… he works for the title company, 2) Community Associations can be a specialty that he know little to nothing about, and 3) he doesn’t want to get involved.

    Get a Community Associations lawyer. The DC bar association should be able to provide a referral.

  • Very similar situation but 22 years ago – my first priority would be to check if the developer is delinquent on the property taxes for the units he still owns. If he hasn’t paid the bank, good chance he hasn’t paid the taxes. If they go up for tax sale – buy the liens, it will at least give you some leverage.

    I definitely would not hand over condo fees to the developer. Set up an escrow account. Ask him to give you all the actual water bills, Pepco etc. and pay them.

    He claims he is managing the building – check to be sure he has actually been paying your bills – especially water. (We had a $20,000.00 overdue water bill.)

    You’re going to need lawyers in this mess, but you can take steps to minimize further losses.

    Be sure the unsold units are in good condition – especially if they are basement units. You don’t want leaks or flooding to grow into a mold fiasco. A shoddy developer will certainly have skimped on things.

    All unit owners should consult with their own homeowner’s insurance companies as well. Good luck

  • We dealt with a similar situation but in our case, we actually had over 75% of the condos owner occupied. We still consulted a lawyer. I think that you are going to a need a lawyer too. Unfortunately it will be expensive, but the whole thing is very complex.

    That said, If I were you, I wouldn’t pay the bankrupted builder either.

    Our builder pocketed our money and then didn’t pay any of the bills. We had a lien put on our property by WASA because he hadn’t paid water for something like the 8 months before we even moved in. He also stopped paying insurance. It’s been about a year and a half and we have a very expensive lawsuit ongoing where we are trying to get this money back as well as money for repairs.

    Comb through the condo bylaws. Are you SURE you can’t fire the developer as property manager?

    I think in our case, we ended up creating an escrow account at Bank of America. We started paying our condo fees into this account, and we paid bills out of this account.

    You might also want to google the DC Condominium Act to be informed.

    Last thing, contact the DCRA. The builder was supposed to post a bond on your property that’s supposed to guarantee your structural warranties (2 years is the law in DC).

    Good luck.

  • bfinpetworth

    Don’t give any money to anyone until this is all resolved. Place it in an escrow account. And by all means get a lawyer, but make sure the person knows her stuff. I would also talk to the other condo owners about a collective action rather than each of you going to separate lawyers. You’ll save some money and you’ll all be working towards the same objective.

    This situation could get very ugly very fast. I would not waste a day – find a lawyer now!

  • by the way, who is the builder????

    Lots of people on this blog have experienced nightmares with various builder…

  • I sent in this question. I wanted (and perhaps I’m naive) to come up with an interim solution to the problem – as in the escrow account, which I had thought of, but do not know much about – before retaining a lawyer in the matter. Admittedly, I’m not very adept with legal matters. I didn’t even know which kind of lawyer we would need to speak with. I’ll look into creating the escrow account and also into locating a community associations lawyer. Thanks for the input Duh and JH!

    • First, call the bank and find out if he is still managing. He may be but even so he may not be the person to give money.

      However, I would definitely seek a real estate lawyer. This is a messy situation.

  • I will defend PoP even though I believe one of the last caption contests was rigged. I clearly had the best caption the winner was exactly like mine but mine was funnier. I want my T-Shirt. (Two Pink dogs)

    All jokes aside PoP isn’t irresponsible someone could have had the same situation happen to them or actually be knowledgable on the subject.

    Well, OP i recently bought a condo and we don’t have an association either because we don’t have 75% ownership yet. Because of this the developer pretty much is charge of the building mainteanace or they can give that responsibility to condo manager. Well in your case the bank is now responsible. So they should be able to verify if the developer still manages the condo. Since the bank wants nothing to do with managing the condo I would even go ahead ask to see if you can amend the by the laws. Not sure about what you can amend. But you should look at the DC Condominium Act. It governs the by the laws and how they are formed. I would review this document first.

    I would take it a step further and do the research for you, just for my own curiousity but I have some ARRA money to award. Contracting Officer in da house 1102’s represent SON!!!!!!

    Curious to how it turns out you should provide an update.

    And to all who think I just troll go suck it.

    I comment out of entertainment and sometimes to be informative.

  • Thanks POP for posts like this. Although I’m not a homeowner (yet), I find posts like this helpful FYIs.

  • I too wonder who the developer is, if anyone is willing to share.

    While I think that the posts as to escrow accounts are correct, I am not a practicing DC lawyer and will not attempt to give advice here.

    What I will suggest is that depending on where in DC the building is, you call either [both?] the people at the Latino Economic Developement Corp [(202) 588-5102] or the Office of the Tenant Advocate [202.719.6568] to weigh in with their better advice.

    So who is the developer and what building is it?

  • I have been dealing with a similar situation for the last couple of years.

    First, do note that there is ALWAYS an association. It’s created by the condo declaration. It’s just that it’s under the control of the developer until a certain threshold of outside ownership is reached.

    HOWEVER, there is also often an expiration date on that control. That is to say, often one-to-two years after declaration, even if 75% isn’t sold, the unit owners are entitled to a certain percentage of representation on the board. Check your docs for this.

    Because there’s ALWAYS an association, you shouldn’t be writing checks to the developer anyway. You should be writing checks payable to XYZ Condo Association, which ensures that your developer isn’t pocketing the money (or will have a much harder time covering his tracks).

    I think the escrow account is a good idea; get together with your neighbors and have everyone pitch into the same account.

    You should definitely also check with PEPCO, WASA, Washington Gas, Trash Contractor, etc to see what state those accounts are in and whether they’re under threat of discontinuation of service.

    The online tax records as well of the DC Recorder of deeds are also excellent resources as mentioned here.

    Oh, and yes, get a lawyer. There is a bunch you can indeed do yourself (quicker and cheaper), but you’ll ultimately need a lawyer to look at the whole situation and help you decide how to proceed.

  • Get a lawyer. Simple as that.

    Don’t have the money? Well then, you probably should consider what is at stake – your condo. Bet that cost you more than the $10k that a lawyer will. Plus you can probably spread the costs out among the other owners AND then sue to recoup it when finished with this horrible battle.

    Good name in DC is Benny Kass of Kass, Mitek and Kass. Used to write a real estate column for the Post, very astute practice and specializing in real estate.

  • I agree with duh above that a list of legal aid resources would be useful to have up on this site, since I think so many of these questions are best handled by an actual lawyer. I’m glad POP posts these, but I think it would be useful, before throwing it to the commenters, to make a (I suppose boilerplate) qualification about the fact that (obviously) the commenters’ advice does not constitute legal advice.

    Anyways, I’ve commented before but didn’t get an answer: has anyone used the pro bono Advice & Referral Clinic from the DC Bar Association?

  • Every time I read these types of posts I become more and more convinced that my philosophy of ‘content to rent’ is the only sound solution.

    All the same, I’m sorry to hear of your frustrations. Sounds like a terribly frustrating mess to be in.

  • I am a bankruptcy attorney and I am not giving you legal advice but am going to give you some practical advice, so you don’t end up giving your money away to the developer. First, you are going to need to determine if the developer actually filed bankruptcy and where he did so. He could have a place of business other than DC and could have filed there.

    1.) Call back the bank attorney and ask them for the caption of the bankruptcy case (so you know what name he filed under–his own personal name or the business) and relevant information such as the case number and state and district where the court is being heard. The bank attorney can definitely give you this information. It is public record. Also, request the name and contact information of the Trustee in the case. The Trustee will be able to help you.

    2.) Once you get that sorted out, the homeowner’s association/condo board needs to hire an attorney to represent them in the bankruptcy case. You guys can represent yourselve but it is far more useful and effective to hire an attorney who is familiar with the law. Then the attorney can file an appearance in the case and find out when all the important dates are including deadlines.

    3.) DO NOT under any circumstances pay this guy money when he comes to your door. Do not pay any money without an order from the court. It is the job of a bankruptcy trustee to take and administer these payments and if the guy is in bankruptcy, the trustee will definitely be contacting your condo board.

    I hope this helps you and good luck.

  • I’m the OP with an update. We are talking with the other owners about possible steps to take regarding the lawyer, escrow, etc. I got the bankruptcy info and there is no trustee. It was filed under an LLC and that was the same LLC that the developer asked us to write our condo fee checks to. We are not giving him any $$$!!! I am at DCRA now to get more info. I really appreciate all the input! Thank you.

Comments are closed.