COA Profit Distribution

Started by GlennN • 12 replies • 1691 views

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GlennN (Missouri)
Posts: 22

Posted:

Here is an email from our COA "communication committee":

"We at Fall XXXX condos have just closed on the sale of unit 75-1. The final sale price was $65,000.00. There were multiple bidders on this unit. The proceeds of about $25,000.00 are under discussion at this time on where they can best be used. As soon as we decide where best to use the money, I will try to inform everyone. This comes at a much needed time to help with our financial situation".

This was a foreclosure the Association bought from the Bank for $40,000, I believe there are only 2 scenario's for the extra funds; either put the funds in the reserve account or distribute the funds evenly back to the members, the Association has a budget, I don't think they can just use the extra proceeds as they wish, also the COA is a non profit under the Missouri Chapter 355.

Any thoughts?

JimR24 (Texas)
Posts: 399

Posted:

My guess is that your governing documents give your Board the authority to handle the funds which (in their judgement) serves your community the best.

What do u think?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

LarryB13 (Arizona)
Posts: 4,099

Posted:

The major difference between non-profit and business corporations is that the non-profit does not provide a return on investment, such as dividends. If the association split the proceeds among the members it would no longer be a non-profit, although the reality is that no one is going to do much about it.

Since most condo association reserves are grossly underfunded, the wisest course of action would be to put those funds in the reserve account.

GlennN (Missouri)
Posts: 22

Posted:

Missouri Revised Statutes Chapter 448:
Surplus funds.
448.3-114. Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves shall be paid to the unit owners in proportion to their common expense liability or credited to them to reduce their future common expense assessments.

So you're right a check back to the owners wouldn't be right only a credit counts.

KerryL1 (California)
Posts: 14,550

Posted:

You partial quote, Glenn, is : "...any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves shall be paid to the unit owners..."

It doesn't seem to me that the proceeds from the sale that you discuss are contained among the above circumstances. If there were fines or delinquencie to be paid, do that, i'd think. But the rest, as someone else suggested might go into reserves.

I'm thinking you're best off getting an HOA attorney's advice.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Can we assume there were no HOA dues being paid during the foreclosure and maybe before? If so, those past dues should be covered.

Myself I would put any monies in the Reserve Fund.

GlennN (Missouri)
Posts: 22

Posted:

Seems the consensus is the reserve fund and I agree.

GlennN (Missouri)
Posts: 22

Posted:

Thank you everyone.

JimR24 (Texas)
Posts: 399

Posted:

Some mighty good advice here Glenn - keep us posted on how this goes for you...ok?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By GlennN on 09/01/2014 5:53 PM
Here is an email from our COA "communication committee":

"We at Fall XXXX condos have just closed on the sale of unit 75-1. The final sale price was $65,000.00. There were multiple bidders on this unit. The proceeds of about $25,000.00 are under discussion at this time on where they can best be used. As soon as we decide where best to use the money, I will try to inform everyone. This comes at a much needed time to help with our financial situation".

This was a foreclosure the Association bought from the Bank for $40,000, I believe there are only 2 scenario's for the extra funds; either put the funds in the reserve account or distribute the funds evenly back to the members, the Association has a budget, I don't think they can just use the extra proceeds as they wish, also the COA is a non profit under the Missouri Chapter 355.

Any thoughts?

What no one has mentioned is that the profit is taxable income to the COA. Assuming you have been filing Form 1120-H, the tax is a flat 30% of that profit (less a $100 deductible and any other expenses related to the sale). There may also be a state tax liability. Also, if that profit exceeds 40% of your gross income (including income from assessments), you may not be qualified to file Form 1120-H and may have to file the standard corporate Form 1120 and pay taxes on all your income, including assessments, less expenses. In this case though your tax rate would be lower.

You really need to consult with a CPA that handles income taxes, preferably one who has prepared corporate and COA/HOA tax forms, to determine what the best course of action to take is.

JimR24 (Texas)
Posts: 399

Posted:

Excellent advice by Glenn. I second that.

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

DouglasK1 (Florida)
Posts: 2,046

Posted:

The profit would be the amount received that was in excess of that needed to pay any unpaid dues, correct?

Escaped former treasurer and director of a self managed association.

GlennN (Missouri)
Posts: 22

Posted:

Yes, but in Missouri, I don't know about the Association but the mortgage lender only has to pay the previous 6 months of monthly assessments and no special assessments if any.

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