Left Adrift

Forty condo associations, mostly on Chicago’s North Side, have found themselves floating in the backwaters of red ink after alleging they were victims of a monumental condo management fraud

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In April, the Illinois Secretary of State’s Office dissolved Regent Realty after the company failed to pay its annual incorporation fee. By then, Strauss had left the state. He sold his Gold Coast condominium on March 13th, for $650,000, and retired to a Spanish-style villa in Scotts­dale, Arizona. Strauss is accused by former clients of stealing $2.4 million from more than 40 condo associations, but so far, many of his old clients haven’t seen any money. (Strauss, who has not been charged with a criminal offense but has been sued in court, declined to comment for this article. Regent’s former employees either refused to talk about the company or didn’t return phone messages.)

The Regent Realty matter appears to be the worst case of alleged property mismanagement to hit Chicago in years, says Gael Mennecke, executive director of the Association of Condominium, Townhouse and Homeowners Associations. “There have been other instances, but this one is really huge,” says Mennecke.

How huge? After it hit the news, Mennecke’s group scheduled workshops for board members who suddenly realized they had better keep an eye on their managers. “You have boards that rely on their professionals, and think that just because they’ve hired somebody, everything’s fine,” Mennecke said. It’s not fine, because ultimately condo boards, not managers, are legally responsible for a building’s assets.

David Bendoff, a Buffalo Grove real-estate lawyer, has sued condo managers who he claims stole from their clients. While he has never dealt with alleged mismanagement on the scale of Regent, the case does fit a pattern. “This problem doesn’t seem to arise in larger, well-established management companies,” says Bendoff. “This seems to occur in very small, mom-and-pop, one- or two-person operations.” At Regent, Strauss dealt with all the boards personally. That gave him an advantage, says Bendoff.

In the past eight years,  Mark Pearlstein, also an attorney, has seen “four or five” significant cases of alleged condo management fraud. For years, he has been lobbying the state legislature to license property managers. Currently, the Illinois Condominium Property Act requires only that a manager be 21, have no financial crimes on his record, and show “a working knowledge of the fundamentals of community association management,” although there is no test for that. In other words, managers who handle millions of dollars in condo funds are held to a lower professional standard than hairstylists, who must be licensed by the Illinois Department of Professional and Financial Regulation, complete a mandatory cosmetology course, and pass an exam.

The Regent case has brought attention to Pearlstein’s cause. In May, state senator John Cullerton, whose office represents the people in many of the buildings allegedly harmed by Regent, introduced a licensing bill. It would require managers to pass an exam showing familiarity with the condo act, and create a board with the power to yank licenses. The bill, which is pending in the General Assembly, requires prospective property managers to undergo background checks and receive continuing education. It also mandates that condo managers provide fidelity insurance to their clients to insure against theft. “I don’t know if it can prevent an initial theft,” Pearlstein says of the proposed legislation, “but it can prevent anyone who does this from working again.”

This article appears in the January 2009 issue of Chicago Magazine.

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