Setting up a New HOA in Colorado

Started by BabetteM • 8 replies • 1949 views

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BabetteM (Hawaii)
Posts: 12

Posted:

I own property in a small (55 lot) HOA in Colorado. We are at the point where almost 50% of the lots have been sold, which, according to our CC&Rs, is the point where the developer turns over control of the Association to the homeowners. The subdivision has a tortured past, including the original developer declaring foreclosure, and the current owner of the unsold/undeveloped lots wants nothing to do with running an HOA. He has agreed to turn over management to the lot owners.

I have been a member of an HOA in Colorado in the past and am familiar with the operations of an HOA. I am also somewhat familiar with Colorado state law regulating HOAs. We have Articles of Incorporation, CC&Rs, and ByLaws in place already, although the ByLaws are horrible and need to be rewritten. I know that we need to register the newly created HOA with the Secretary of State and apply for 501(c)3 standing. I also know that we need to get a detailed accounting of our monies (no-one has seen a budget yet) so we can figure out management of our common areas. At the present time we don't have an Association attorney and I'm not sure that we have the money to hire one. One of our homeowners is a retired attorney, so I'm hoping that we will be able to get by without hiring one.

I'm hoping that there are some among you smart people out there who have been through this process. Thanks in advance for your input!

Babette

MatthewW4 (Arizona)
Posts: 500

Posted:

Quote:

Posted By BabetteM on 07/30/2013 4:48 PM

I know that we need to register the newly created HOA with the Secretary of State and apply for 501(c)3 standing.

There are other regular contributors to this site who have a better handle on this than I do, but 501(c)3's are tax-exempt chartible organizations and I do not believe that an HOA would qualify.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Babette,

I don't think it would be a 501(c)3 corporation as 501(c)3 is for Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations.

In addition to the following links about transitioning from Declarant to Membership control, I've attached a checklist that was provided on an earlier thread about transitioning.

Transition Of The Association To Owner Control

Developer Turnover Checklist

Transistion by the Foundation for Community Association Research

Checklist of Records for Turnover from Developer to Community Association

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📝1730452260771.doc(23 KB)

CynthiaM3 (Colorado)
Posts: 14

Posted:

Hello,

You can call DORA - Real Estate Division. They have a HOA Resource and Information officer. They provide excellent recommendations and guidance.

BabetteM (Hawaii)
Posts: 12

Posted:

Thanks for all of your replies.

I did do a search before posting, but was looking under "setting up new HOA" or "turning over to HOA". I didn't think of "transitioning"!

I've spent the last day looking through the links you gave and have put in a call to the DORA Resource Center.

Also, I thought that HOAs were tax exempt. Not???

MelissaP1 (Alabama)
Posts: 13,836

Posted:

HOA's are non-profit in terms that they are to spend as much money they collect as they spend out on operation/maintenance costs. They can have some savings for future capital improvements and emergencies. Money outside of that or gathered by other means than dues collections can be subjected to taxation. It is a fine line. That is the basics of the set up.

No they are not exactly tax exempt. They may be able to buy supplies with a tax-exempt status with the corporate ID. However, one would need to check with their state laws on how that works.

I think people hear "Non-profit" and think "Charity". There are different forms of "Non-profit" and the IRS determines that. So a Donation to a HOA is not tax-exempt and is subjected to the HOA paying taxes on that money. So one can't use one as a tax shelter.

We do have an excellent TAX resource poster here that can assist and clear up many details. He is a good resource for that.

Former HOA President

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Former HOA President

RogerB (Colorado)
Posts: 5,067

Posted:

Quote:

Posted By BabetteM on 07/30/2013 4:48 PM
I own property in a small (55 lot) HOA in Colorado. We are at the point where almost 50% of the lots have been sold, which, according to our CC&Rs, is the point where the developer turns over control of the Association to the homeowners. The subdivision has a tortured past, including the original developer declaring foreclosure, and the current owner of the unsold/undeveloped lots wants nothing to do with running an HOA. He has agreed to turn over management to the lot owners.

I have been a member of an HOA in Colorado in the past and am familiar with the operations of an HOA. I am also somewhat familiar with Colorado state law regulating HOAs. We have Articles of Incorporation, CC&Rs, and ByLaws in place already, although the ByLaws are horrible and need to be rewritten. I know that we need to register the newly created HOA with the Secretary of State and apply for 501(c)3 standing. I also know that we need to get a detailed accounting of our monies (no-one has seen a budget yet) so we can figure out management of our common areas. At the present time we don't have an Association attorney and I'm not sure that we have the money to hire one. One of our homeowners is a retired attorney, so I'm hoping that we will be able to get by without hiring one.

I'm hoping that there are some among you smart people out there who have been through this process. Thanks in advance for your input! Babette

If you have articles of incorporation then you are registered with the Secretary of State as a not-for-profit corporation. No other registration is needed except with DORA. You are not qualified for 501(c)3 standing. Your small HOA can easily file with the IRS using form 1120-H. The tax will be 30% of only the "outside" income, such as interest on bank accounts, less the standard $100 deduction. So you will owe little or no taxes. State taxes are filed using Colorado Corporation form 112. Both forms are simple. We provide this help to the HOA's we manage at no cost.

MikeR15 (Massachusetts)
Posts: 389

Posted:

Babette,

Have you ever thought about killing the HOA before it even begins?

Do you really want to subject yourself and your neighbors to that nightmare where you are held hostage

in your own home by some out of control, poorly regulated entity, with bottom feeding "service providers"

reaching into your wallet at will?

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