Paying Prizes/Gifts from Association Funds

Started by ReneeD • 9 replies • 3617 views

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ReneeD (Illinois)
Posts: 201

Posted:

Would a HOA not-for-profit status prohibit the use of association funds for ANY purpose over and above the collection of funds to cover budgeted expense items as administrative, building, landscaping and reserve fund? We are an IL not-for-profit organization.

Aside from circumstances below, how do the two following examples differ?

(1) BOD recently announced a holiday decorating contest where prizes will be given to three homeowners either by cash but will most likely be gift certificates. However, BOD elects not to elaborate who, if any, or what funds will pay for these prizes.

(2) BOD questioned property management a couple years back if association funds could be used as a form of gift or donation to a former BOD member/homeowner whose spouse lost their battle to cancer; who had exhausted all their savings, had no job/medical coverage, and was on brink of foreclosure. The response was that association funds could not be used for anything outside of budgeted expense items namely administrative, building, landscaping and reserve funds.

So far I have found nothing in our Decs/ByLaws.
-ReneeD

AudreyB (Florida)
Posts: 104

Posted:

Hello, ReneeD,

I live in Florida, and I have just about the same problem with my Assoication as you do.

I am told, over and over again, that if is isn't written within your legal documents or Bylaws, then they cannot do it. They (Board) cannot and should not make things up as they go along. But, they do and get away with it. Why? Because there is no one in the capital of your state in which you live that has the authority to enforce the statutes. Then, none of the homeowners no any better than to question them. So, question them about where it is written within our legal documents, and have them tell you page and paragraph you can find where it says they can do these things? If they can't tell the NO WAY are you going to allow them to do whatever they want. Remember, the squeaky wheel, and get a few other homeower's to side with you. There's a chance your dues will go up to cover such expenses, and they neeed the homeowner's votes to do so, and if you and other homeowner's do not say NO to them now, there is a very good chance they will get their way,anyway.

I would wonder if your Association claims such items on their income taxes? Income is taxable even for a not for profit corporation. Such corporation is not exempt from filing an income tax form each year. Donations are always taxable to the donator. Yet, they do whatever they want. Look at your Articles of Incorpoartion and see if they say anything about your situation. If so, write your BOD's a certified letter telling them to stop because your Articles say no. Also, look up what your statutes of IL say. NO always means NO. Do not allow them to get away with it as long as they have no amendment which states the can give gifts, make donations, and give away prizes with your dues, and a statute of law for IL that says they cannot do this, then they cannot do what they are doing.

Look on Page 5 of this forum Amendments to Articles of Incorporations.

Now, my Articles of Incorporation say: "There shall be no dividends paid to any of the members, NOR SHALL ANY PART OF ANY OF THE INCOME OF THE CORPORATION BE DISTRIBUTED TO NAY OF ITS BOARD OF DIRECTORS OR OFFICERS. In the event there are any excess receipts over disbursements as a result of performing services, such excess shall be applied against future expenses.”

Unlike your Associaton, my Associaton amendend our Articles of Incorporation to compensate our volunteers, and call it "gifts." Every year our dues are preallocated for their legalized gifts in the amount of $7,500 a year.

I just heard back from FL Dept of State Div of Corp. and they say, "We do not question the manner of adoption of an amendment as long as the basic requirement is met. Also, we do not file bylaws or amendments to bylaws" I clearly told them the basic requirements were not met. The Association filed the amendment to our Articles of Incorporation under our bylaws and filed them with our local courthouse, which is perfectly legal. Which makes their legalized "gifts" they receive from our yearly dues, legal. As a Board member from another Association, I am outraged that no one in FL cares, and I have to pay $200 to mediate this situation.

So, please stay on top of what you've got going with your Association, and let the other homeowner's that they cannont do this if it isn't in writing they cannot just make it up.

Once, a person wrote me his opinion about what my Association did," your Associaton is misappropriating the use of their funds, which is punishable by jail time."

Please let me know how things are going.

Happy Holidays,
Audrey

FrancesD
Posts: 15

Posted:

I live in Colorado and our board does the same thing they offer door prizes and food at the annual meeting in order to get people to attend they have even given away $100.00 donation to a church for allowing us to use there space.There are no rules I can find supporting this but our presidend does what she wants to.I am tired of having my dues go to such nonsense and paying the increase in dues for them to continue doing this.

RichardM (Colorado)
Posts: 1

Posted:

We many times use a church for our meetings. Meeting space isn't free. I suppose the church we use calls it a "donation" to make it easier on their books. It legally wouldn't qualify as a donation to the IRS because we receive something of market value for our money.

Our HOA combines our Annual Meeting with a picnic in order to even get a quorum present. We don't have door prizes, but we do feed everyone. I haven't heard from anyone who has a problem with a couple hundred dollars going toward a community picnic.

The one thing we do which could be taken the wrong way is each Christmas our board gives a $100 gift certificate to the guy who has been doing our lawn/sprinkler maintenance for the past 10+ years. It pays for itself 10 times over in additional services that he doesn't charge us for. In fact, we even budget it and categorize it as lawan/sprinkler maintenance.

If people don't like the decisions I make as President, then they can have the job. It's that simple. That a key concept that gets lost in these HOA debates. There is usually a line of people bitching about something (usually always the same people), but there is never a line of people wanting this 300-500+ hour per year job at ZERO pay.

HankL
Posts: 47

Posted:

Part of the board's fiduciary duties is to put the Association ahead of individual owner(s). My test for similar things has been whether or not the Association benefits.

Gifts for a boardmember leaving or something like that, provided they were a good boardmember, is for the board to chip in. On the other hand we threw a big 10th Anniversary bash, with prices and catering and other good stuff. This benefitted everyone equally (though it shouldn't have), and in a behind-the-scenes kind of way celebrated the board's ability to turn around finances and put us all at a very high comfort level financially. When I left the board, it soon fell back to bad leadership and worse-than-ever (in extremis) bad financial condition. A quorum was never achieved again, houses became "distressed properties", and I was boiling mad. Now I am pres again, and only about two wack-jobs have complained. Others have expressed great relief. I don't know if a second financial miracle will happen, and management says it won't. I took the Washingtonian approach. I go without reinmursement for almost everything, including the big food spread at my first meeting. Quorum achieved. No shouting matches. More people now have a clue. We now have a quarterly newsletter and an annual report. Sometimes this can be expensive, but the confidence of the membership is vital. It also shows that we no longer do nothing as the usual solution to problems. Generally, the governing documents require doing certain things and forbidding doing other things. If you have never asked the right question, you will never get the right answer.
QE24ME

MindyD (Arizona)
Posts: 47

Posted:

I am not sure if this helps you or not but our HOA had a decorating contest this year for the first time in years and I was one of the Grand Prize Winners. My prize was a 25.00 gift certificate to a movie theater with a free popcorn coupon and a bag of candy. The prize was not on a grand scale by any means but the involvement with all of the neighbors and small doses of competition was fun and I think it brought a sense of community to everyone. Every other unit that put even one light up also received a 5.00 certificate to McDonalds. I believe the small amount taken out of the funds can not compare to how it brought neighbors together. Just a small note here that my electric bill just laughed at my prize winnings, but I don't care.

HankL
Posts: 47

Posted:

The matter of cancer puts one member ahead of all other members. Can't do it using Association funds.

There is nothing in my docs that says a meeting place must be rented for meetings of any kind, but obviously it is a necessity for many Associations. I do not worry too much about prizes which are equally available to all owners in good standing, whether for a picnic event or as a reward for one owner who has no visible property deficiencies (This too is an equal opportunity thing since all owners are required to keep up appearances.

Gifting to outgoing volunteers, even on the Board, should be paid by fellow Board members.

A lot of whats in the documents is non-specific. Just because it doesn't say blimp mooring masts are forbidden doesn't mean it is permitted. Go to the broader words of purposes and use them for all they are worth.

RogerB (Colorado)
Posts: 5,067

Posted:

We use a budget line item called "Association Events" to cover those items which can benefit all members of the assocation. This may include prizes selected randomly at the annual members meeting, picnic, Easter egg hunt, holiday party, renting meeting space, and any others which any and all members may participate and/or benefit. Funds provided directly to individuals are not allowed.

RogerB

JimR (Colorado)
Posts: 21

Posted:

I tried to put some heart into our community functions, help a burnt out homeowner, start a spring clean up project for the youngsters in our community so that they could get the good feeling of doing community service. Voted down on all counts.

Against the rules to spend Association money for a donation to a burnt out homeowner in our own subdivision.

Can not spend money for hot dog and a soda and a cup of icecream for the cleanup participants, let alone spend a buck for a framed certificate of appreciation from our community.

This was our attorneys interpretation. No can do! I agree with it because where does it stop, or where does it go. But even when I had the retail support from people like Wal Mart and etc. to pay the costs, the insurance factor came into play and liablity in case a kid received a stick in the eye bit by a bug.......

Where are the good old days? Before Attorneys, MC, and the law suite crazy Americans.

HaroldS (Arizona)
Posts: 906

Posted:

Where are the good old days? Before Attorneys, MC, and the law suite crazy Americans.>>
You left out the most important "Before":
Where are the good old days before HOAs! LOL. Harold

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