the annual renewal of our Not For Profit status

Started by MichaelJ8 • 5 replies • 1515 views

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MichaelJ8 (Illinois)
Posts: 113

Posted:

How do i find out if the State of Illinois requires the annual renewal of our condo association Not For Profit status? I asked our developer (who is still in charge)and he had no clue of what I was talking about. I do know we have a tax id because the accountant files a 1120h for the federal tax and files a tax form for Illinois.
Question #2. I collect, deposit the assement fees and pay the few bills that we have. All the money is in the checkbook. We have no reserve fund set up. His lawyer said to wait until the condo owners becomes their own association. Is there or can there be a problem by leaving it in the ckeckbox? I am a little nervous to say the least that many rules are being broken that could cause serious problems.
Am beginning to wonder if wife and I made a mistake by buying a condo!

TimB4 (Tennessee)
Posts: 21,059

Posted:

Michael,

If Illinois works like VA, once you have received a not-for-profit status, you do not have to re-apply. However, as a Corporation you would need to file annual reports and possibly pay a yearly fee to the State. Check your State Corporation Commission to see what is required.

With your Association under declarant control there is typically a lot of gray area in the laws. Developers tend to keep assessments artificially low to encourage sales. This becomes a huge shock for the membership when they first realize that the Association doesn't have enough money for a project. Therefore, as a member, you are correct to worry about having a Reserve. What account the money is actually kept in typically doesn't matter as long as all the money is accounted for.

When owners start being allowed to sit on the Board, bring the issue up then. It's usually easier to start saving for reserves earlier rather than later. As the turnover comes closer, you might even want to insist on a Reserve Study so the membership truly knows where it stands.

Tim

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Michael,

The only problem I can think of regarding reserves (needing a separate account) is when it comes to purchasing units. Some mortgage underwriters will be unwilling to offer mortgages without adequate reserves. The problem is that their common practice is to sell their mortgages and to do that they must meet Fannie Mae and Freddie Mac requirements. As a result of the housing crisis that got both Fannie and Freddie into trouble, both have, within the past few years, tightened their reserve requirements regarding condominiums.

If I can dig up the article I read on the subject of reserves, I'll try to post it here.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Michael,

As I remember it, Fannie and Freddie require that 10% of the annual budget be put into reserves unless a study has been done to show that a lesser amount is adequate. Our association sets aside 6% for the reserve fund and when Fannie and Freddie tightened their requirements a few years ago, we did such a study. That's how we arrived at the 6%.

I believe FHA approved loans also have the same requirements as Fannie and Freddie.

SusanW1 (Michigan)
Posts: 5,202

Posted:

How much are you talking about? The Board can direct you to deposit the "extra" into a money market until a Reserve Fund is set up.

You need to get that money designated, or else the develper will find a use for it, to be sure. Right now, it's his money.

MichaelJ8 (Illinois)
Posts: 113

Posted:

BruceF1, You are correct on the reserve fund. A bank wanted a budget (I only took the treasure job to help out the builder. I am not an accountant so the budget was a surprise) so I created one with a reserve. The bank wanted 10%. I must of did all right, the bank accepted it.

SusanW1, We only have less than 9,000 that can be put in a reserve fund. The builder has no idea what is in the checking account.

When we become our own association i am going to look into having an accoutant do the book work. The reason being for that is that no one else wants to do it. (Does that sound like something you have heard before!!!!

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