Online HOA Information

No, wardell, that is not what you originally asked, which is why I was trying to get you to clarify.

This is what you asked:

" Why would a HOA change their status without leting the homeowners know? see link below: http://www.secstate.wa.gov/corps/search_results.aspx?search_type=simple&criteria=all&name_type=contains&name=&ubi=601885269"

So I checked to link. You know, to see if the HOA DID change its status.

When you said "see link below" that's exactly what I expected to see.

that they had changed their status.

What I did see was that they apparently didn't file their annual report in time last year.

Now, WHY would an HOA switch to Profit as opposed to Not-for-Profit or Non-profit?

I would imagine they would either not qualify for the designation of non- or not-for- profit under the rules of your state OR that they wanted to take advantage of some sort of loop hole for taxes in some way.

Not that there are any for doing that.

But I don't see that the HOA you linked to has done that.

So I'm asking you: Did the HOA change its status without "letting" the homeowners know?

What documents do you have that show that the HOA you linked to did that? Maybe link to those and it might give some idea as to why they did it or not.

Glen,

You said: "For example if you live in our community a H/O can rent the clubhouse for a private party. If we started letting outsiders rent it we would be operating it as a business which would change our tax status with the State and the Federal government (IRS). Instead of being taxed solely on our reserves (savings) all of the money coming into the Association (dues) would be taxable."

I believe you are wrong in your assumption that the assn would have to change it's status from non-profit to profit if they were to start renting their clubhouse. The basic function of a non-profit corp is to provide a service. Excess revenues are either given back to the members or used to advance the purpose of the corp. This doesn't change just because the assn decides to rent the use of their facilities to non-members. If you take a look at the IRS Form 1120-H (used for HOAs) you will see a line item titled "Gross Rents", which is non-exempt function income and is taxed accordingly. This is how the monies collected in your example would be reported to the IRS and the state revenue dept. As long as the main reason which allowed the assn to qualify as a non-profit doesn't change their status as a non-profit will remain.

Donna,

Can you explain what the difference is between "nonprofit" and "not-for-profit"? The IRS has only one classification - "nonprofit". The state of AZ has only one classification - "nonprofit". I've always been of the opinion that they are one and the same. This is reinforced by the lack of info to the contrary on a web search. I found one statement that said: "THe terms "not-fo-profit" and "nonprofit" are generally used interchangeable." Several articles I read used the terms interchangeably. If you do a search of "not-for-profit" you will get info on "nonprofit" and vice versa.

Thx!

Mary I did qualify that I am not an accountant. I used an example from our documents since I am most familiar with them. IMO if the BOD decided to go into the business of renting the clubhouse to the general public, got a business license, liquor license, advertised it for rent, etc. It now becomes a for profit business which as Donna pointed out cannot be done without a change in the charter or articles of incorporation. It is common for HOA's that have a clubhouse to rent it out to their members which is what I interpret that line for.

From our Articles of Incorporation: Section 3.8. To do whatever is deemed necessary, useful or conductive to carrying out any of the purposes of the corporation and to exercise all other authority enjoyed by corporations generally by virtue of the provisions of the Ohio Non-Profit Corporation Law.

Nothing in these Articles of Incorporation or in the By-Laws shall authorize the corporation to, and the corporation shall not, enter into any transaction, carry on any activity, or engage in any business for Pecuniary profit. The net earnings of the corporation, if any, shall not inure to the benefit of any incorporator, member, or any member of the Board of Trustees of the corporation, or any private individual.

The corporation shall not, and no clause of this Article III shall be construed as authorizing the corporation, to do any act or enter into any agreement or deal with real or personal property in a manner which would violate any provision of Chapter 5311 of the Ohio Revised Code or any amendments thereto.

Be that as it may (and it probably is!), in Kentucky we have only one designation: nonprofit. We don't have an option for not-for-profit.

However, HOAs are nonprofits in KY. We can't "decide" not to be one, EXCEPT that if we DO NOT FILE TAXES PROPERLY, the IRS removes our non-profit status and we then become responsible for taxes on our assessments that were not exposed to taxes before.

But this is not something the board "decides" to do as a "benefit" to the Association. It's usually something an inept treasurer will cause to happen without the full board being aware.

However, an audit should uncover it and the HOA can always regain it's "nonprofit" status by catching up on all tax filings and paying whatever taxes and fines may have developed in the interim.

Michele,

You said: "However, HOAs are nonprofits in KY. We can't "decide" not to be one, EXCEPT that if we DO NOT FILE TAXES PROPERLY, the IRS removes our non-profit status and we then become responsible for taxes on our assessments that were not exposed to taxes before."

Are you sure about this? The IRS does not bestow the nonprofit designation on a corp. From what I understand, usually that's something approved at the state level. I would think if the assn filed incorrectly by claiming income as exempt when it wasn't, the IRS would just let them know they'd made a mistake and they would have taxes to pay accordingly. Just like if you or I make a mistake on our tax return. I'm not doubting what you've said, but I'd be interested to know where the info came from.

Thx! :-)

GlenL;

I went to the meeting but did not get much information. Out of nine board members only one showed up + the secretary I was not sure how they could try to call a regular meeting when they did not even have a quorum for the annual meeting out of 101 homeowners. This is two years in a row that this board could not get a quorum.

Last year they called another annual meeting for the second time but I still don’t believe they got a quorum the second time around, so I asked to see the sign in sheet and they refuse to show me.

Now this year they still could not get a quorum but yet they called a regular meeting. I would think they would have had to call another annual meeting till they get a quorum of 26 people.

As for the nonprofit they are talking about buying CD’s for reserve funds. They can not get homeowners to pay their dues or get the landscape done and now they are talking about taking our money and putting it into CD’s.

Thanks for your help Glen

Michelle,

Sorry, somehow my msg was posted b/4 I was finished! :-(

I hope the BOD has learned their lesson by not allowing the Treas. to file tax returns. That's best left to a CPA. Even when I was Treas I insisted upon hiring a CPA to file the tax returns and I had worked as as accountant at a CPA firm and prepared corp. tax returns all the time. I just didn't want the resp. as an unpaid tax preparer.

I must disagree with my colleague, Joseph West. My reading of the Wikipedia article on HOAs is that it reflects the views of writers who are pro-owners/members in HOAs, not that they are necessarily anti-HOA. Of course they oppose the excesses and abuses that occur in HOAs as often posted on HOA Talk.

It seems to me that the improvements we are all seeking should be the result of being both pro-owner/member and pro-HOA. There are clearly both individual and common interests. These issues are very well discussed in the 1999 article by Lois and Samuel Pratt at
.

Don,

I was referring to "homeowner association", not HOA. 12 lines under "Benefits" and the rest of the article under sections entitled: "Undemocratic", "Board Misconduct", "Double Taxation" and "Financial Risk to Owners". This version has been considerably toned down from a version I looked at about 6 months ago.

The phrasing is somewhat subtle but the intent comes through. Take the sentence "Homeowner associations can compel homeowners to pay a share of common expenses, usually per-unit or based on square footage". It could have been phrased, "When purchasing in an association, the owner agrees to pay assessments to cover the costs of......."

"Some scholars and the AARP charge that in a variety of ways HOAs suppress the rights of their residents.[9] Due to their nature as non-profit corporations, HOA boards of directors are not bound by constitutional restrictions on governments, although some critics claim that they are a de-facto level of government" is right out of the handbook and in fact, the 'Some scholars' is, in fact only Evan McKenzie.

Their references to CAI are not neutral, with no mention of the huge resources available through their publications. CAI has over 400 publications regarding associations, but they basically reference and push McKenzie and Staropoli's books. First exterior link is AHRC.

It's been toned down, but it still tells very little of the entire story.

Joe

Gloria,

You may be correct in your assessment of a nonprofit org; however, that's not what I've read. A corp. is termed nonprofit because it provides a service to its members. While the general nature of a nonprofit is not to make money there is no law that I'm aware of that says a nonprofit cannot make a profit at the end of the year. The main difference between a nonprofit HOA and a for profit corp is that the HOA is not taxed on their exempt income (assessments). They are only taxed on non-exempt income, i.e, rents, royalties, interest, etc.

Again, I have a different view. These issues are at the crux of the owners association problems.

Owners associations became nonprofit corporations by default, not because the nonprofit profit corporation was the right legal entity.

It is interesting to note that the legislation over the past decade or so basically adds democratic principles to the laws governing owners associations. Unfortunately, the legislation is reactionary, rather than proactive. From my research the broadest legislation is the Virginia Property Owners Association Act and the Florida Chapter 720 Homeowners' Associations Act. While not sufficient in my view, these two acts incorporate many democratic principles.

But the question is "What is the right legal entity for a property owners association (POA)?" As with all organizations, it should begin with a Statement of Rights. The nonprofit corporation act does not so begin.

Other writers, in addition to Evan McKenzie, recognize the importance of definition of rights and incorporation of more democratic principles: Paula Franzese, Susan French, and Wayne Hyatt. Hyatt is a former officer of CAI. In a 2004 talk, he discusses coming together with Evan McKenzie titled "Creating Communities in CIDs" at
http://www.liebmann.bizland.com/id24.html. In the talk, Hyatt states, "We use a bill of rights in our governing documents. It's very simple, very straightforward. But it sets expectations. You want to give some assurances to the people in the community, assurances as to voice, inclusiveness in governance, best efforts to communicate, and openness to listen." Very clearly, these are democratic principles.

I agree with Joe West that CAI provides many useful documents concerning operation of POAs. However, when it comes to rights of owners/members, their writings are equivocal — no clear statement of rights. But that is what one should expect since CAI is a trade association for accountants, association managers, attorneys, builders, developers, engineers, insurance providers, management firms, mortgage firms, real estate interests, repair companies, reserve specialists, and other providers of professional goods and services for property owners and their associations. Owners are those pesky people who provide all the money and expect to be treated fairly. CAI has opposed rights for owners/members in various court filings.

It is not us vs. them — meaning owners vs. owners associations. It is both owners and owners associations, as I wrote in my previous post. A fundamental precept is that the power to govern should be from the consent of the governed. Not from the developer's attorney who writes the initial CC&Rs.

WardellD - I read all the posts to the subject started by Graham O. All the posts (completely that is) right up until the one or two after yours. Hopefully the discussion is back, or will get back on topic with the concept of using Wicki as a resource for info on HOAs.

GrahamO's post is below, again. WardellD, please learn the respect of starting your own post rather than hijacking someone else's

GlenL said: "Don the consent to be governed comes when the H/O signs on the dotted line saying they agree to be bound by and honor the covenants; which is a darn site more choice than you get by the simple act of being born in this country. I read the posts here day after day and bless the lawyer who drew up our documents and the laws the state has put in place."

Very well stated, Glen.

Don stated: " While signing on the dotted line may be legally sufficient, many buyers do not read and understand the bargain they are agreeing to. As a practical matter, the "buyer beware" on recorded CC&Rs is not sufficient to inform buyers what may be in store for them. The documents are long and difficult to read, and may include terms with which the buyer is not familiar."

I would say the financial documents that one signs when buying a home or real property are much harder to read and comprehend. My personal belief is that most people are under the age-old assumption that Deed Restrictions are meaningless and unenforceable so they don't pay attention to them. One of the second-most frequent "defenses" we get when we try to enforce against them is this one, "Yeah, I got those, but my builder told me they weren't worth the paper they were written on so I didn't have to pay any attention to them."

What they are discovering is that is not the case.

The "buyer beware" on recorded CC&Rs continues to be "tested" and not found wanting, as it should be.

How hard is it, after all, to understand that "no sheds" means No. Sheds. ?? So that if you want one, you then complain that other people are "controlling" your property when you knew that before you moved in. You just thought you could ignore the rules. (Note, not "you" personally, but "you" in the general sense.)

But that, again, goes back to the topic of this thread. Online sources can certainly BEGIN with sites like Wikipedia, but Wikipedia certainly needs to be read with great care as indeed people can and do write to bias on the articles, and the casual reader might not have a depth of knowledge to know when they are being yanked by someone's chain agenda.