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If you already know what a “status certificate” is, you’re probably either in the real estate business already, or you know way, way too much about real estate…

Every condominium produces a large set of documents referred to as a “status certificate” at time of sale which is available for the buyer, or potential buyers and their agents and lawyers, to review.  The status certificate contains an executive summary, a Reserve Fund study, the condominium’s declaration, the rules and regulations, an insurance policy, financial statements, a current budget, a list of all by-laws, and then potentially a shared facilities agreement, policies on cannibis, or other forms that some condos have, and some don’t.

Boring, right?

I may have lost some of you already, perhaps around the “insurance policy” or thereabouts.

But if you’ve ever bought or sold a condominium then you know what I’m talking about.

Many condominium purchases are conditional upon the buyer’s lawyer reviewing the status certificate, and when the real estate market is busy, many buyers and/or their lawyers will review the status certificate in advance of making an offer so that the buyer can make an unconditional offer and thus put him or herself in an advantageous position.

I am not a lawyer.  But I can often review a status certificate as well or better than a lawyer, and yes, you can throw shade at me for that statement, but it’s true.

Case in point, I have a downtown condo listing right now and a buyer agent recently emailed me with some questions based on feedback from the buyer’s lawyer.

Here was one of her points:

The Tarion Warranty claims and the note at paragraph 21 which I read to say that Tarion has rejected them in some fashion. You should get more clarifications on that because if the result is you lose your warranties for a new build that’s a really big issue.

This is incorrect.

The building is nine years old and is not covered by Tarion.  This is not a “new build.”  There are no “warranties to lose.”

This point was about a Tarion claim made nine years ago which is still pending, and it was not rejected.

Simply put, this lawyer didn’t know what he was talking about.

Another point:

I’m not a litigation lawyer, but I know that things aren’t “done” until they are truly done. Because the other side could potentially appeal, or continue attacking in other ways etc. And even if the other side’s claim has no merit, if there are legal fees to be paid and that responsibility could fall on the condominium corporation, which would then end up falling on the condo unit owners.

Well, I mean, you had me at “I’m not a litigation lawyer.”

And the idea that things aren’ “done” until they are truly done sounds like a line from a bad Clint Eastwood movie.

The problem here is that the lawyer is talking about a lawsuit when this is actually a lien.  And the lien is on a handful of units in the building, NOT against the condominium corporation.  In fact, the condominium corporation has zero liability here, but rather the liability is on the units and those specific unit owners.

I bring this up simply to demonstrate that when I say, “I can read and analyze a status certificate,” you don’t automatically call me an irresponsible, pompous ass, since the above demonstrates that not all lawyers even know what they’re doing.

A condominium’s status certificate can run some 200 – 300 pages, but when a lawyer says they will “review” it, do you think they’re reading every page?  There are dozens of pages of calcuations of condo maintenance fees that don’t require attention, not to mention legal descriptions of units, lockers, and parking of all units in the building, along with a lot of other information that’s not pertinent to the purchase or sale of a particular unit.

In fact, most lawyers simply read the 5-7 page summary.

This is where a competent, qualified, experienced real estate agent can likely deduce as good or better than the average real estate lawyer whether there are concerns in the building that require further investigation.

A client of mine made an offer on a condo this week and only hours before the scheduled offer date, the listing agent emailed all buyer agents to say that she’d obtained a copy of the building’s status certificate.  Now, why in the world she didn’t order that status certificate two weeks earlier is a topic for another day.  But knowing that my client might not have the financial strength to “win” in competition, we figured that to review the status certificate in advance and be able to submit an unconditional offer would be advantageous.

So what do you look for in a status certificate?

I’m pretty sure I’ve covered this before, but you’re looking to see if the maintenance fees are paid up, if the budget is accurate, if there’s any surplus or deficit in the budget, if there are any major repairs/renovations planned in the building, if there are any major expenditures planned for, any increase in maintenance fees, any special assessments, how much money is in the Reserve fund, if there are any lawsuits, liens, court orders, Tarion claims, or other legal action.

And not to simplify the status certificate, but that’s about it!

Here’s a look at part of the status from earlier this week:

Okay, so there’s $6,837,619 in the reserve fund, and while you might not know what this means, I surely do!

I honestly do believe that this is the most money I have ever seen in a condo’s reserve fund.

I don’t have a running tally or anything, but I know from experience that over $2,000,000 is really good (of course depends on the number of units, but just giving you a rough idea), over $3,000,000 is really rare, over $4,000,000 is eye-popping and I’ve only seen that a few times, but over $5,000,000 is something I don’t know if I’ve seen before.  And if I have, it’s probably once.  So what in the WORLD do I think about $6.8M?

So I’m not going to say that I merely looked at the amount of money in the reserve fund and gave my client the thumb’s up.  If there was a $6,000,000 repair needed, then where would this get us?  But looking at the budget and anticipated repairs/expenditures will tell you if that $6.8M is really what it is.  And in this case, it was.

It was a very over-funded reserve fund, and since there were no increase in maintenance fees scheduled or discussed, no special assessments scheduled or contemplated, zero legal action of any type, there was virtually no concern in this building.  The seller was not in default of maintenance fees and had no complaints or discipline.

“All good,” as the annoying early-2000’s idiom goes.

Our offer wasn’t successful, in the end.  There were six offers on this unit!  Who says the market is slowing down?

But at least we were able to gain a competitive advantage with our unconditional offer.

In any event, this is merely background information for what I have promised you is “The Worst Status Certificate I Have Ever Seen.”

A short while ago, a colleague emailed me a status certificate with something to the effect of, “What the fuckitty-fuck is this?” in the subject line of the email, which was enough to pique my interest.

She asked me to look at the status certificate, and there I saw something that I had never seen before.

I’m going to share this with you so that you may see if it jumps out at you.

Have a look, and don’t skip down.  Just try, okay?

What do you see here:

It should absolutely leap off the page, folks.

We’re not talking lawsuits here, nor are we concerned with special assessments or maintenance fees.

This is something I have never seen before.  Not once.  Ever.

That’s a negative balance in the reserve fund.

And not, like, negative a thousand bucks.  Or few thousand.  Or even a hundo.

There’s a negative million dollars in the fund, and that is something that I have truly never seen before.

My colleague had to take a listing in this building and she said that the building wasn’t selling particularly well.

No kidding?

I think the smallest amount of money I’ve ever seen in a condominium’s reserve fund is probably $200,000 and that’s in a brand-new building that’s just been registered.  Perhaps in a one-off, 4-unit condominium, I might have seen a reserve fund of like $38,000, but in an actual building with several hundred units, we’re not accustomed to seeing less than $500,000.  And as noted above, we want to see millions.

In this case, we had negative one million, or close to it.

But it was my understanding that, under the Condominium Act, there are rules as to what the money can be spent on and invested in.  For example, you can only use the money in the reserve fund for major repairs or replacement of existing assets.  The money can not be used to buy new assets.  There are also only a handful of financial instruments in which cash can be invested, which makes sense.  You can’t have the board of directors taking the reserve fund to the casino.

But I was under the impression that a reserve fund cannot be negative.  I suppose it can be zero, but it cannot be negative.  There’s no way.

So how in the WORLD can a condominium show -$934,165.87 in the reserve fund?

If you’re expecting a catch, then you know me very well.

It wasn’t a typo.  That would be really, really boring!

Upon further investigation, we learned the following from a unit-owner in the building who served on the board of directors, and who knew the building inside and out but never really thought it was important to explain this crazy line item in the status certificate!

The Condominium carried out a $5,000,000 window replacement project which was contracted on a payment plan.

Due to accounting principles, once a project is completed, the entire amount owed must be accrued and showed on our statements no matter the payment arrangement.  So that amount is what it would be if we would not have implemented a payment plan.

To put this in a financial perspective, we had $611,049.00 in our bank account at the end of April.

Our Reserve Fund is very healthy, and due to our heavily funded Reserve Fund, we are planning a Reserve Fund reduction of about 30% in 2024, as we would be too heavily funded for the needs of our building.

An accounting measure, really?

That is the answer here?

I can’t help but think this is like when you ask a magician how he’s able to escape the heavy steel chains that tie up his entire body after he’s dumped into the middle of the ocean and he holds out his hand and says, “I have a key in my hand when I’m dropped over-board.”

An accounting measure.  Wow.

When I see something for the first time ever in life, whether it’s in business, or out there in the world, I figure there’s a catch.  We’re either witnessing history, or there’s another story.  In this case, it truly was a first; it was a negative amount showing in the reserve fund.  But it didn’t mean what we thought it did.

The saying, “If it’s too good to be true, it probably is” might have an opposite.

Perhaps something like, “If it looks absolutely miserable, it’s not always what it seems.”

My colleague sold her listing in three days but only after she was able to explain to buyer agents why the reserve fund showed a negative balance.  I’ll be honest: I don’t know how I’d feel about buying in that building.  Not because of the negative balance in the reserve fund via the interesting accounting, but rather because $611,000 in a reserve fund for a building of that size, where $5,000,000 was just spent on windows is hard to swallow.  Especially when the property management claimed the building will be “over-funded.”

$6,837,619 in a reserve fund is “over-funded.”

Alright, so maybe “MLS Musings” would have been better received on a cloudy Friday, but experiencing a “first” always keeps me on my toes, and this was one for the ages.  I’ve just never seen anything like it.

Happy Friday, everybody!  Have a great weekend!

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