homeowner compensation through services.

Hi Everyone,

I have a homeowner who is far behind in his account & in the last stage of our legal process which foreclosure. The new board inherited this situation & wonder what is our options. In the past, this homeowner has a license & bond landscaping business. The previous boards have used his services in order to credit his account. This is a form of compensation & saves us money. His bids are far cheaper than what the Board would pay for other contractors that offered.

I read an internet article that states nonprofit organizations must not compensate any homeowner by default. I don't want to jeopardize our corporate shield and our ByLaws & CCRs only state no compensation for Board & ACC members rendering their services, nothing else. I don't know if this common practice. In a way, it appears to be a violation & is not fair to the other homeowners. I would suspect this to be an exception since the Board has to deal with this far outstanding account in some way. I would like to know what other Boards would do in similar situation. Any advice is greatly appreciated.

Thank Melissa, I was afraid of that. Can you elaborate more or be specific on the major concern/liabilities we are facing. I like to be on the same page with you. At least get the key major points what we are exposed to in this mess. Anyone else for advice would be appreciated.

It is not a liability just poor bookkeeping. Your HOA did not need to enter a contract with a person who owes money to it. The best bet now is to set a line in the sand and start from there. For us we have a policy of 6 months behind we lien. 1 year we CONSIDER foreclosure. Never foreclose on property already being foreclosed by the bank. Plus if active duty one can't foreclose. Foreclosure is a stop the bleeding ONLY act. Nothing wrong with keeping a lien long term and active. It accumulates over time till the owner sells.

So make sure your HOA has a policy of when it liens and when it considers foreclosure. Once that is established, then pursue those in violation by notifying them by certified letter of intent. Your HOA can negotiate the late fees/interest if it wants in a way to set up a payment plan. Otherwise NEVER EVER do it out of compensation for work.

Jay,

Typically, the governing documents specify that the costs of the Association are shared equally (or by percentage) by the members. Waiving assessments can be seen as a violation of that section of covenants.

Additionally, the IRS sees assessments as a debt owed. Waiving of all or part of the debt is considered income by the individual and the Association should be issuing a form 1099-C.
see:
IRS Topic Number 431 - Canceled Debt – Is It Taxable or Not?
IRS Publication 4681
IRS Form 1099-C, Cancellation of Debt

Melissa is correct that it is also messy bookkeeping and your auditor will explain it to you.

Regarding foreclosures, I agree it's a waste of money to foreclose on a property that someone else is foreclosing on. You will still be paid based on the order of liens.

I disagree that you can not foreclose on military personnel (active duty or Reserve personnel recalled for active duty). You can. It takes a whole bunch of steps and time as it requires a court order. A lot will depend on where the service member is stationed. See:
SCRA: Servicemembers Civil Relief Act Overview from Military.com
SERVICEMEMBERS CIVIL
RELIEF ACT (“SCRA”) The act itself

Liens have to be renewed. Do that now.

RE: the association "crediting" a homeowner's account using service payments.

It's a bookkeeping mess, as stated, but . . .

I know one association that has made a check out to "XYZ Landscaping OR Sunnyside Association." The check was endorsed by the Association. The monies were then credited to the homeowner's account, but he never had the check in his hands.