Many developers have fallen hard over the past few years due to projects that just didn’t meet up to expectations. It is not uncommon to find condominiums with only a handful of units sold. Certainly, all of this leads to cash-flow concerns. Unfortunately, it has also led to allegations of wrongful misappropriation of reserve funds.
Kent Swig and Yair Levy, partners of the failed condo conversion Sheffield57, are both being sued by owners and tenants for alleged fraud and failure to pay common charges. Swig is accused of resorting to withdrawing illegally from the building’s reserve fund more than 40 times. Swig also allegedly spent nearly $6 million from the reserve fund of Sheffield57, claiming to replace windows, but no documentation showed evidence of a need to replace the windows. Levy, who was once hailed as the “condo king” of New York, defaulted on his mortgage at another property, Rector Square, and is also accused of abandoning renovations and stealing reserve funds from the building.
Owners have filed numerous complaints with the Attorney General’s office as a consequence of the near-depletion these reserve funds face. A co-op or condo’s reserve fund should maintain sufficient resources for any necessary maintenance, major capital improvements, and unforeseen renovation or repairs. Money should be invested wisely in order to ensure the growth of a reserve fund. To prevent misappropriation of such funds, boards as well as project managers should control the funds and a dual signature should always be required for any action taken regarding the fund, especially withdrawals. Precautionary measures must be taken and board members are strongly advised to review the reserve fund annually for further protection and assurance.
Written by Debra J. Guzov |
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