Ocean City MD condo owners file AG complaint over $2.6M project

By Deborah Goonan, Independent American Communities

Three unit owners of an Ocean City condo building filed a complaint with Maryland’s Attorney General, shortly after they were hit with $18,000 – $40,000 special assessments per unit, slated for a $2.6 million exterior renovation project.

Ocean Place Condominium Association plans an extensive renovation of the exterior insulation finishing system (EIFS) over the next two years. Construction would begin this fall, with the work scheduled in the off-seasons.

The condo board has selected All States Construction Co., Inc. for the extensive work.

When the Association first announced plans for an exterior renovation in 2017, it estimated a total cost of $1 to $1.5 million.

But, according to reports in Salisbury Daily Times and OC Today, some condo owners were blindsided the Association increased the budget to $2.6 million. The condo board gave unit owners only 10 days notice of the more costly plan, before unit owners met to vote on the project.

HOA President Scott Banker admits to OC Today that the project expanded beyond renewal of the building’s waterproof EIFS coating, to include new windows, balcony railings, and privacy partitions. He claims that three-quarters of unit owners voted to approve the $2.6 million project in November 2018.

Each owner is reportedly obligated to pay their special assessment in eight installments of approximately $2,250 to $5,000, spread out over the next two years.

 

Condo owners want transparency

But some owners aren’t happy about the project, heavy with cost overruns before it even begins.

Three unit owners filed a formal complaint with the Maryland Attorney General’s office on Dec. 12, 2018: Donald Hattier, Paige Neuhart and Ronald Deacon.

They tell reporters that at least one third of condo owners agree that the $2.6 million project should be postponed, while owners re-evaluate essential work that needs to be done vs. upgrades that could be delayed for the future.

Neuhart also says the board needs to be more transparent, in accordance with Maryland laws governing condominium associations.

The complainants say that the Association hasn’t provided a full breakdown of costs to explain why the cost of the project increased by $1 million over original estimates. Wary owners expect a detailed accounting of the All States contract, including an allowance for contingencies.

They say that, before conducting last November’s vote, the condo board should have consulted with owners on the scope of the project, as well as financing options, to avoid hitting owners with steep special assessments up front.

 

About Ocean Place condos

The 5-story, 100-unit Ocean Place Condominium building is located in Maryland, near the Delaware border. Constructed in 1983, it’s a popular summer vacation destination. Depending on the size and view, a condo unit can rent for $700 per week in the off-season, and more than $1,800 per week during peak season.

Attorney Chad Toms of Whiteford, Taylor & Preston, LLC in Delaware represents the condo association. Toms is licensed to practice in New Jersey, Delaware, and Maryland. He’s also a CPA, though that license is currently inactive.

According to his official biography, Toms conducts presentations for the Community Associations Institute, Chesapeake Region, and is also a member of the Advisory Council for the Common Interest Community Ombudsman of Delaware.

Owners and board members are now communicating through Maryland AG’s office.

 

A shared business arrangement

Many advocates, professionals, and legislators agree that residential condominium and homeowners associations function as quasi-governments.

But vacation condominiums like Ocean Place function more like a shared business enterprise.

In most vacation communities, nearly every condo owner lives elsewhere, in their primary residence. Each vacation condo serves as an investment property, which might occasionally be used for personal enjoyment.

According to one report, most of the owners at Ocean Place are senior adults. Most presumably supplement their retirement with income earned through short-term rentals.

Unfortunately, most people who buy a condo as an investment don’t stop to consider their shared obligations to maintain the common areas and common elements. Sooner or later, repairs become necessary or desirable.

Then comes the challenging task of getting unit owners to agree to a renovation plan and a budget for that plan.

 

The condo game: Winners vs. Losers

Every community is different, but, in most cases, unit owners will come from diverse backgrounds. They’ll hold differences of opinion about when and how to keep up and improve their community.

Depending upon when they purchased their condo units, owners will have different financial priorities.

Take, for example, an owner who purchased his condo decades ago at a low price. He’s well into retirement, and counting on a steady, positive cash flow. He tends to balk at expensive and extravagant renovations. He prefers to do a minimal amount of renovation — work that is absolutely necessary, and nothing more.

And he’ll want to pay special assessments as small monthly increases spread out over time.

By contrast, a unit owner who has purchased her unit more recently, with plenty of cash to spare, might be eager to upgrade the building’s architecture and its amenities. From her perspective, improvements justify higher prices for short-term rentals.

To maximize returns on her investment, she may also prefer to avoid paying interest on loan repayments.

Then, just as in any family, condo association members don’t agree on how to spend their collective money.

Some owners are very frugal by nature, while others tend to be big spenders. The frugal owners don’t want to spend one penny more than necessary. Spenders are often willing to pay a higher price for the convenience of letting someone else handle budget details and management of a renovation project.

One thing is almost certain. When an Association votes on a high-budget construction project, a sizable minority of unit owners will be unhappy if the vote doesn’t go their way.

 

Too trusting?

Here on IAC, you can read plenty of articles about corruption, fraud, theft, and conflicts of interest in association-governed communities.

In almost every case of misconduct, a dishonest or unethical board member, manager, or contractor takes advantage of inattentive and naïve owners.

All too often, members of a condo or homeowners’ association put a little too much trust in their board members or the community association manager. They’re so busy with their own lives, that they don’t take the time to question the Association’s decisions.

They rarely attend meetings or read the minutes. And most owners don’t pay close attention to the finer details of their annual budget.

Many remain blissfully ignorant.

Until a crisis occurs, and owners get walloped with a massive and unexpected assessment.

Or until the community falls into a deep state of disrepair, after many years of mismanagement, neglect, wasteful spending, or illegal diversion of funds.

Many anecdotal reports show that when a manager or contractor works with a weak condo board, project costs can be grossly overstated.

That’s why all condo owners at Ocean Place should stop and listen to the concerns of Hattier, Neuhart and Deacon. Transparency is a good thing.

 

When condo boards avoid transparency

In general, when a condo or HOA board resists open communication and won’t provide easy access to financial records, it’s only natural for some owners to wonder what the board is hiding.

And sometimes, there really is nothing to hide. But a board’s defensive stance makes attentive owners suspicious.

But there’s another fundamental flaw of common ownership communities. Owners who cast the “winning” vote usually aren’t willing to compromise with owners who cast the losing vote. Major financial decisions turn into an all or nothing proposition. And it breeds resentment from the losing side.

And with weak voting controls, election disputes are the norm in some HOA governed communities, where no vote goes unchallenged.

Unfortunately for Ocean Place, now that attorneys got involved, communication has come to a screeching halt.

In short order, HOA community legal battles tend to get very expensive and very ugly. When that happens, everyone loses.♦

Source articles:

Ocean City condo owners fight for transparency on building repairs Sara Swann, Salisbury Daily Times Published 6:00 a.m. ET April 8, 2019 | Updated 9:16 a.m. ET April 8, 2019

Condo owners hoping to halt fall Ocean Place renovation Victor Fernandes, Staff Writer, Ocean City Today | Apr 4, 2019 Updated Apr 4, 2019