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Maintaining a co-op/condo's financial integrity.

Volatility in the real estate market is a fact. It has made owners more concerned with whom they entrust their buildings. A firm of experienced, highly organized property management professionals can chart a course for stability in both calm and turbulent times.

When the economic forecast is uncertain, as it is now, co-ops and condominiums face a special threat to their economic security. Shareholders and unit owners, unable to meet their financial obligations, may owe back maintenance or common charges; they may also be in default with respeCt to their mortgage commitment. This loss of income will create a deficit situation whereby homeowner associations will not have the revenue necessary to meet routine operating expenditures.

The managing agent must act immediately to inform the board or condominium association of any existing financial problem and must recommend a strategy for effective action. Managers with a proven record of strength and financial acumen prepare for the long haul, and take all precautions to insure that the property maintains its financial integrity.

Condominiums are especially vulnerable to financial problems when a large number of vacant or tenant-occupied, investor units are in default. The condominium association has only one option, and that is to put a lien on the apartment and move to foreclose. Since there is little chance of collecting due common charges, prompt action must be taken.

Generally, when there are defaulting units, there is also a mortgagee involved who has also commenced foreclosure proceedings. A recently decided case has led to a court ruling that grants the mortgagee the right to exercise the first lien. These foreclosure proceedings can take up to several years to finalize and during this period of time, the condominium will receive no income from the defaulting units. The lender, when granted possession of the units, is not responsible for back charges accrued during-this gap; it is responsible only for charges going forward.

The inability to colleCt common charges from the units in arrears results in a shortfall between the condo's income and expenses. The association is forced into the position of having to raise the common charges and assess owners to cover the shortfall.

This burden on responsible owners may compromise their willingness to respond to future assessments levied for capital improvements that may be crucial to maintaining the value and the integrity of the building.

Taranto & Associates has a high success rate for helping condominiums avoid this costly nightmare. In two recent situations, where there were non-owner-occupied units, managers worked with attorney Bruce Cholst of the Manhattan-based firm of Rosen & Livingston to request that the court appoint a receiver for tenant-occupied investor units in arrears. In both cases, the court awarded Taranto & Associates' managers the receivership, making it possible for them to collect the charges owed to the condominium in a timely, efficient manner.

We advise not waiting several months before taking action on a unit in arrears. Lost time means lost revenue. You need to move forward at the first sign of a problem, and enlist the services of exceptionally skilled legal experts. Staying on top of the proceedings from day one through final resolution is absolutely imperative if you're going to achieve a positive outcome.

Taranto & Associates recently won N.Y. Habitat's prestigious first place award for crisis management, and received additional recognition for superior management ski]Is in the category of finances. We have discovered several other areas in which management can implement cost-cutting strategies to keep common charges from skyrocketing. We recommend keeping a lid on all non-essential capital improvements.

While an expensive lobby renovation may enhance the value of the property, improvements that directly impact the quality of life and safety of the residents must take precedence. The status of the roof, HVAC systems, windows, and security, should be considered before investing in a new entranceway.

Creative managers have a variety of ideas about how to enhance the appearance and comfort of common areas, such as the lobby or laundry room, until such time as a complete renovation or modernization becomes economically feasible.

Preventive maintenance programs can also help to cut costs and save money. A building operates like a machine. It requires inspeCtion, maintenance and service for maximum operational efficiency.

We engage engineering specialists and consultants following state-of-the-art guidelines for the safe, energy-efficient operation of a building. Every time an emergency situation is avoided, you save money, because in a crisis, the price for service can often triple. It's important to carefully evaluate the managing agents commitment and track record concerning preventive maintenance policies.
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Title Annotation:Mid-Year Review & Forecast, Section II; cooperative apartment building/condominium
Author:Taranto, Marcia
Publication:Real Estate Weekly
Article Type:Column
Date:Jun 23, 1993
Previous Article:Is your building sick?
Next Article:Owners must tackle new legislation.

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