Dear PoPville – Advice for first-time condo owners in new building?

Photo by PoPville flickr user pablo.raw

Dear PoPville,

I own a unit in a newly developed 3-unit condo building (converted rowhouse) in DC. The unit sold a couple of months ago, and we three unit owners have no idea what to do next. Our bylaws, which layout the structure and operations of our condo association, were recorded by the developer with the Recorder of Deeds, but that is it. We have not ever registered with the DC Govt as an LLC or any other business entity. Do we need to do this? If so, is an LLC the best structure, or something else? Are there any good resources to help three new and first-time condo owners?

16 Comment

  • This is important stuff (with expensive consequences if you get it wrong), so I suggest calling a local real estate lawyer instead of taking advice from the comments section. The DC Bar can refer you to someone appropriate.

  • Yep, visit a lawyer and get him/her to write your condo docs and figure the other stuff out. I was in a similar situation and spending the money to hire a lawyer was worth the cost. It’s a small job for an attorney, so expect to pay and you’ll probably need to harass the attorney to get the job done correctly.

    Another bit of free advice is: aggressively build up your reserve. Things go wrong with newly-redone and new buildings as you discover where the builder cut corners. You’re going to need this money.

    If you’re small, don’t hire a building management company. I had nothing but bad experiences with them. You’re too small for them to care and they don’t do anything you can’t. If they tell you they’ll get you set up with an LLC, etc. They’ll just screw the job up.

  • ~ The Dali Lama of Bloomingdale

    I can help with this, as I just did the exact same thing. Our condo building is in our second year. We have JUST about ironed out everything but it took a lot of time and work.

    1. Don’t hire a mgt company unless you just can’t get the other owners to do their share of the work. It will really increase your condo fees.
    2. Check your bank accounts (or create them if they are not created already) you will need an operating account and a banking account. I suggest using a mid sized bank that will give you free accounts and allow direct deposit or direct transfer of funds from owners into the account. If the accounts were set up by the builder make sure their name is NO LONGER ASSOCIATED with the account, even if you have to close the accounts and start new ones.
    3. Get together as a group and read through your by-laws word for word, make notes about everything that you need to do (huge list, making a budget, voting for officers, insurance, etc etc etc) then prioritize the list and work it off until you have everything in place.
    4. Make sure you have all of your utilities set up and billed in the name of your condo, trash, water, gas, common electricity, insurance, landscaping, pest control etc.
    5. Make sure there is a back up treasurer with read only access to the accounts so they can check periodically that the bills are being paid by the treasurer.
    6. Make sure more than one board member has signature authority on the bank account, in case the treasurer drops dead.
    7. Make plans for any services you don’t have but need, such as a trash, pest control, snow removal, fall leaf removal, yard work, etc.
    8. Once you get all of this worked out go through the by laws again and see what things work for you and what things don’t. Remember these are legally binding documents, if one owner gets pissed and wants to mess with the rest of you he can sue for what you did not follow in those documents. Work on the changes you want to make, then go to a lawyer to ensure they are legal in DC, then vote and register them in DC to adopt your new list.
    9. live happily ever after. Feel free to ask any other general questions here. I had a few posts on here asking for feedback during our journey, it really helped to get ideas of what others had experienced.

    • Updated:

      #2 – You need an Operating Account (for paying bills) and a Reserves account (for saving money to fix future problems)

      If your building has FHA approval you will need to renew that in 2 years and consider adding rental restrictions to the building to ensure you don’t loose that approval.

      Almost every post says get an attorney…… I won’t say don’t do that but you will be spending a heck of a lot of money on stuff you can easily do yourself. That is unless you are just not “common sense” group of people (not meant derogatory, not everybody is good with understanding documents and understanding how a home runs) We have a board of three with an additional treasurer. It has taken a LOT of our personal time working but we have done way more than you will need to do by ourselves (we have a 10 unit building with FHA). We only used an attorney when we needed to, to review changes before we had them registered.

      One note someone else brought up, with your building only having 3 units, you will have to be VERY on top of things. If one owner does not want to be on the board or want to work, you will have to hire a company to do it. It should be made known to all potential buyers that serving on the association is expected and required to keep fees low. You also have to be ready to handle an owner who decides to drop out and stop paying their condo fees, it will hurt your bank account much quicker with only three people paying into it when one stops. It can be handled, just have to stay on top of it.

      Good Luck!

  • Please get a lawyer, and please don’t discount the idea of having an outside manager. If you find yourself on the opposite side of any issue, you’re going to wish pretty hard that you aren’t going to be at the mercy of the other two units. And know that you won’t always have those other two unit owners there–owners you might be getting along with great now–but they could sell or rent out to nightmare occupants at any time.

  • Suggested resource with good information:
    Community Associations Institute

  • Definitely get a lawyer. You basically just bought a rowhouse with two strangers, who can sell to anyone at any time. You want to protect yourself in case someone in the other units has very different ideas of how to be neighborly or how to maintain the property.

  • I live in a small condo building as well. I HIGHLY recommend exploring the option of using a management company. My building has 8 units and for $40/unit every month I’d rather not deal with the hassle of telling my neighbors that they are behind on their dues or that they have to pay for damage. My friends live around the corner in a 4 unit building. After a year of awkward arguments, billing discrepancies, and issues collecting dues they relented and are interviewing the same company that we use this week. Yes, it is an added cost, but if you go with a small company that specializes in small buildings you should be OK – I rest easier at night knowing that for less than one night on the town someone else is worrying about my building …. and doing a GREAT job. We use CityLights Realty. The owner is Sally Hamidi and she rocks! Can’t hurt just to ask about cost!

  • Get a lawyer, and get a management company. This is coming from someone who more or less single-handedly got our 12-unit association up-and-running from developer neglect to full outside management. The interim included 1.5 years of myself being the building manager. This includes everything from bidding out services to meeting vendors at the building to let them in to making sure the bills are paid to getting calls in the middle of the night about all sorts of things. Let someone else take care of this stuff for you. It is worth the 6-8% they are going to charge you and will protect you and the other owners immeasurably. The few thousand dollars you will need to pay a lawyer will also be well worth it. Don’t do this by yourself.
    Reco’s: Lawyer: Pardo & Drazin LLC, Friendship Heights. Management: Paul Associates Inc., Chevy Chase MD.

  • How in the world did you ever buy this place without knowing all this in the first place? Not trying to dis you here – but really?

    I’ve always wondered about these 2-3 unit row house conversions. I have no idea how they work. You have to live very closely with people you know nothing about – and who could sell to anyone at anytime. Wishing you the best luck.

  • Most of the chain banks are going to ask you for paperwork. We had to register our association with the IRS and DCRA.

    Long story short – National Capital Bank was more than happy to work with us. Others have touched on everything else I’d add 🙂

    Good luck!

  • I’m the treasurer for a similar 4 unit rowhouse condo. Forming the LLC was easy to do online. It allowed me to get a tax ID # for our condo association. This allowed me to open up a bank account for the association.

    The benefit of self managing is low condo fees.

    Even though you are only three people, I would recommend formal meetings at leasty yearly. You should delineate duties: ie president, treasurer, secretary.

    Initially, there was no need for a lawyer. However, one owner stoped paying condo fees and we had to get a lien on his unit. This unfortunately required getting a lawyer, with the legal fees to go along with it. It worked out in the end. He also stopped paying his mortgage and the unit was evetually returned to the bank. The new owner is lovely.

Comments are closed.