A Maryland court recently entered a $1M judgment against the Tomes Landing Condominiums and its management company, MRA Property Management, for providing misleading budgets to prospective purchasers. Read more here.
Apparently the Board and Management did not accurately represent the physical and financial status of the association to purchasers of 23 of the association’s 93 units over a period of four years (2000 – 2004) when they provided what are called in Maryland “resale certificates”. It is one thing to be optimistic, it is another thing to be fraudulent by misrepresenting the facts. The Resale Certificates over that period of time stated that there were no known problems. But a Reserve Study in 1999 clearly identified many physical and financial problems with the association. The “smoking gun” finally appeared in 2004 when the board levied a special assessment to resolve the physical deficiencies throughout the property. The new owners were not amused.
Currently the judgment is being appealed. Regardless of the final decision on this case, the board had to know what was going on with their budget and their common areas through that period of time. It appears they simply decided to ignore telling the truth through annual Operating Budget and Reserve Fund disclosures.
$1,000,000 is a big penalty for a failure to communicate. The lesson to be learned is update your Reserve Study annually, being honest with your owners about the physical and financial status of the association. Misinformation and surprises lead to lawsuits!