Funding Source for expanding existing safety network

SusanH33 (Florida)
Posts: 6

Posted:

If an HOA sells 2 lots that it owns, can:

1. Can funds be used to set up a Contingency Safety Fund?

2. Can those funds then be used to expand and upgrade the existing Safety Program?

MichaelT21 (Arkansas)
Posts: 462

Posted:

I'm not sure exactly what a Contingent Safety Fund is, but will give my best guesses to your question.

1. Whether the Board can sell off lots it owns is based on the CC&Rs and By-Laws. Without reading them, I don't know if they can or cannot sell of property.

2. A Contingent Safety Fund sounds like a rainy day fund. Unless the CC&Rs are revised that specify the existence of a contingent safety fund and specify what the money can be used for, it's simply another name for an operating account and the money can be spent at the will of the Board.

We have homeowners in our community that clamor for rainy day funds (they are not talking about reserve money), that is, unrestricted funds that the Board only uses for emergencies that are not paid out of reserves. The problem is, since there is not a rainy day fund in our CC&Rs, there is nothing that restricts what a Board can use the money for.

SusanH33 (Florida)
Posts: 6

Posted:

Yes, both of the properties can be sold.

We had an issue come up about HO wanting more "security" (a non-gated community with guards checking everyone without a decal in + photo of license plate). The only way to provide another layer of safety to the neighborhood is to add Flock cameras throughout the neighborhood that our local police department will respond to, staff entry with guards 24/7, and purchase the necessary software to link the Flock cameras.

This is after the budget and reserves have been set. We don't have enough extra operating dollars to fully fund the program. We cand fund 2/3 of it when the lots are sold.
We're just trying to classify the income so it can be utilized to address safety at the next level.

Thank you

SusanH33 (Florida)
Posts: 6

Posted:

Quote:

Posted By SusanH33 on 11/08/2022 12:16 PM
Yes, both of the properties can be sold.

We had an issue come up about HO wanting more "security" (a non-gated community with guards checking everyone without a decal in + photo of license plate). The only way to provide another layer of safety to the neighborhood is to add Flock cameras throughout the neighborhood that our local police department will respond to, staff entry with guards 24/7, and purchase the necessary software to link the Flock cameras.

This is after the budget and reserves have been set. We don't have enough extra operating dollars to fully fund the program. We cand fund 2/3 of it when the lots are sold.
We're just trying to classify the income so it can be utilized to address safety at the next level.

Thank you

SusanH33 (Florida)
Posts: 6

Posted:

Quote:

Posted By SusanH33 on 11/08/2022 12:16 PM
Yes, both of the properties can be sold.

We had an issue come up about HO wanting more "security" (a non-gated community with guards checking everyone without a decal in + photo of license plate). The only way to provide another layer of safety to the neighborhood is to add Flock cameras throughout the neighborhood that our local police department will respond to, staff entry with guards 24/7, and purchase the necessary software to link the Flock cameras.

This is after the budget and reserves have been set. We don't have enough extra operating dollars to fully fund the program. We cand fund 2/3 of it when the lots are sold.
We're just trying to classify the income so it can be utilized to address safety at the next level.

Thank you

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Expect to pay taxes on the sale. Plus does that mean two more lots for votes / members? Same membership number?

Why does the HOA own these lots?

Former HOA President

JohnT38 (South Carolina)
Posts: 1,631

Posted:

Quote:

Posted By SusanH33 on 11/08/2022 12:19 PM

Posted By SusanH33 on 11/08/2022 12:16 PM
Yes, both of the properties can be sold.

We had an issue come up about HO wanting more "security" (a non-gated community with guards checking everyone without a decal in + photo of license plate). The only way to provide another layer of safety to the neighborhood is to add Flock cameras throughout the neighborhood that our local police department will respond to, staff entry with guards 24/7, and purchase the necessary software to link the Flock cameras.

This is after the budget and reserves have been set. We don't have enough extra operating dollars to fully fund the program. We cand fund 2/3 of it when the lots are sold.
We're just trying to classify the income so it can be utilized to address safety at the next level.

Thank you

Other with a stronger legal background can comment on if my concerns are valid. If you are thinking about adding guards and a bunch of monitored cameras, I would consider this an amenity (HOA provides security.) which in some cases cannot be added without owners voting and your governing documents being amended.

SusanH33 (Florida)
Posts: 6

Posted:

John,

The lots were acquired through legal foreclosure. They are legally in the name of the HOA. We have owned them for years. So, they are the property of our Master Owners Association.

The question is where to put the sales proceeds so that we can earmark them only for use in expanding the safety network.

Thank you

MichaelT21 (Arkansas)
Posts: 462

Posted:

Quote:

Posted By SusanH33 on 11/08/2022 12:47 PM
John,

The lots were acquired through legal foreclosure. They are legally in the name of the HOA. We have owned them for years. So, they are the property of our Master Owners Association.

The question is where to put the sales proceeds so that we can earmark them only for use in expanding the safety network.

Thank you

You can't earmark them for a specific purpose unless you revise the CC&Rs.

You should sell the lots you acquired through foreclosure so you get a property owner who pays dues to the association.

SusanH33 (Florida)
Posts: 6

Posted:

Your answer is what I thought should occur. We're just trying to fund the expansion of the safety network.

Good thought about a dues-generating owner. They are more valuable to the HOA as cash. We have over 1,300 homes, 5 nice lots remaining that are owned by the son of the original developer, and 2,600 residents.

Thank you.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Susan

The question is what can the association do with money it makes selling the lots? My initial blush is the association can do what the BOD decides to do. That said, legal advice is needed.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By JohnT38 on 11/08/2022 12:30 PM

If you are thinking about adding guards and a bunch of monitored cameras, I would consider this an amenity (HOA provides security.) which in some cases cannot be added without owners voting and your governing documents being amended.

I agree.

The Board here does not have carte blanche to spend this windfall on any old (or new) thing the board desires. An owners' vote and probably, an amendment of the governing documents, will likely be necessary to add infrastructure or services.

I also agree the income here must be reported on the HOA's annual tax returns. It's entirely possible (likely?) that a chunk of this money has to be paid to the federal government as taxes.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

There are several more complications you are overlooking or unaware of. Your selling a foreclosed lot. Empty lots do not always have voting rights when owned by the developer. They operate a bit different. Once you sell these lots this adds 2 potential additional members. They will be responsible for paying the dues once developed.

The money can't just be "earmarked" for a certain project. It will have to go into the pool of the budget. A HOA is ONLY funded by it's members for it's members. This is typically done by dues collection. Any thing outside of that adds tax issues.

I would not have chosen to have the HOA to own foreclosed property. That is a bad idea. Has dues been being paid on these lots since purchase? If so, it should have been the HOA paying the dues on these properties.

This needs a good lawyer and or accountant to consult on this. You may be surprised by a few things were not aware of in the process. Ones that may be costly...

Former HOA President