Property Taxes

Started by SteveH20 • 12 replies • 4245 views

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SteveH20 (South Carolina)
Posts: 32

Posted:

In reviewing the HOA's annual financial statement we discovered the developer (still in control of the HOA) used HOA funds to pay property taxes on some of the common areas in the development. The property is still registered in the name of the developer's company and has not been deeded to the HOA. The previous year's financials were also restated to note payment of the taxes for the previous year.

Has anyone experienced this one? Is this legal?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Why wouldn't it be legal? The developer OWNS the property and would be responsible for paying the taxes on it. The HOA will pay the taxes on the property once it is turned over to the members/owners. The dues you pay now go to the developer in order for them to maintain the property which includes paying property taxes.

The HOA is formed by the developer. That way, when the developer leaves, there is the ability for the owners to self-manage the property amongst themselves. Your a HOA, just not a self-managed one yet. So your developer will be responsible for operation costs which is paid by your dues. Just like it will be in the future.

Former HOA President

PetunkaM (Florida)
Posts: 1,009

Posted:

‘pay property taxes on some of the common areas in the development.’
Steve,
The Developer paid taxes some of the common areas but not all?
I am a little surprised you pay taxes on common property. We have over 7 acres and do not pay any. In some states, HOAs are eligible for major tax reductions on common areas which are appraised at a very low value. You may want to check into it eventually.

CarolF (Florida)
Posts: 435

Posted:

Also from Florida......no taxes are paid on common property owned by the association.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Remember this isn't a HOA yet. It's still developer controlled. It's a HOA probably by name only. So there could be some property taxation involved. Especially if there are structures involved like a clubhouse or areas of future development. Let's not mix our apples and oranges together. A Developer owner/controlled HOA operates under slightly different rules than a member run HOA. The property owned still falls under the developer's corporate lines. Once the HOA incorporates as a member owned corporation, then the other laws may come into play with taxes...

Former HOA President

PetunkaM (Florida)
Posts: 1,009

Posted:

‘Remember this isn't a HOA yet.’ Melissa

So what is it?

Once the HOA incorporates as a member owned corporation, then the other laws may come into play with taxes... Melissa

As far as I know HOA is incorporated by the Developer.

BradP (Kansas)
Posts: 2,640

Posted:

Quote:

Posted By MelissaP1 on 10/16/2011 3:41 PM
Remember this isn't a HOA yet. It's still developer controlled. It's a HOA probably by name only. So there could be some property taxation involved. Especially if there are structures involved like a clubhouse or areas of future development. Let's not mix our apples and oranges together. A Developer owner/controlled HOA operates under slightly different rules than a member run HOA. The property owned still falls under the developer's corporate lines. Once the HOA incorporates as a member owned corporation, then the other laws may come into play with taxes...

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The developer would be stupid not to have the HOA incorporated and bylaws and restrictions already recorded prior to selling the first house. Even though the developer still controls it is an HOA and depending on state laws may or may not have to pay taxes.

DavidW5 (North Carolina)
Posts: 565

Posted:

As others have pointed out here, in Virginia our HOA pays no property taxes on the common elements. The assumption is that the assessed values of all of the homes in the community are higher due to the existence of those common elements. Therefore, the state/county receives the same income in the form of the property taxes paid by the individual home owners.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

What I am saying that if the developer is "John Smith" then John Smith could own his OWN corporation. Let's call it "JSmith Corporation". This is the name of which he made the purchase of the property he is developing. JSmith coporation may be responsible for paying the property taxes. The HOA is formed by the developer and is indeed a corporation/incorporated. However, that HOA would be "HOA corporation". The HOA corporation yet does not own property as it is a formation of SEPARATE property owners. It is the joint co-operation amongst the owners that creates "common property and HOA".

Basically, "JSmith Corporation" owns the land and the "HOA corporation" holds the interest in this corporation. The HOA members are much like stockholders but the developer with the controlling interest. Once the developer leaves, then the HOA corporation becomes independent corporation that has all the control. It still doesn't own "real property" as each individual owns their own property but SHARE in commonaility. It's that common ground the HOA manages/controls.

Former HOA President

SteveH20 (South Carolina)
Posts: 32

Posted:

It is easy to see how lawyers make a very good living after listening to these responses. Our Development is two separated legal entities, the company developing the land and the legally formed HOA. There is no question the HOA will be responsible for taxes once the land (common areas) are deeded to the HOA. If the common areas were deeded to the HOA there would be no question, the issue is the Developer still owns the land, not the HOA.

I should note the fact the HOA became "suddenly" responsible for the taxes last year. They were paid by the Developer in the prior years and these taxes were never included in the annual budget. I should also note the Developer is in severe financial difficulty, which may play a part in this issue.

PetunkaM (Florida)
Posts: 1,009

Posted:

‘Our Development is two separated LEGAL entities, the company developing the land and the legally formed HOA. Steve’

Steve,
with all due respect this was not clear from your first post. Usually, the HOA is one legal entity which includes undeveloped lots.

SteveH20 (South Carolina)
Posts: 32

Posted:

The Developer is a separate company and the undeveloped land is in the name of his company and this company pays the taxes on the undeveloped land. The taxes on all of this property are currently delinquent, including several common areas.

What is interesting is the HOA paid taxes on some common areas and did not pay them on others.

The reason we are concerned is the Developer recently lost his home the IRS and his company is struggling to avoid bankruptcy. We realize he is desperate and he has been in total control of the HOA for several years. He refuses to answer any financial questions, ignores letters and calls, and has cancelled the annual HOA meeting.

This whole situation has a "bad odor" about it.

BradP (Kansas)
Posts: 2,640

Posted:

I can smell the "bad odor" in Kansas from this one. If I were you I would get your neighbors together and seek the opinion of a real estate lawyer with HOA experience. If things are this bad already and the developer is this desperate you need to protect yourselves and your property.

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