Here are some common questions we receive from community associations.
Q: Can a HOA incorporate as a Non-Profit to avoid paying Real Estate Taxes on Common Areas?: I live in a community, which has a Beach Club. They are a non-profit corporation. In 2007, they declared themselves an HOA, and own a $2,000,000 piece of land which they don't pay taxes on. The HOA Act of WA State suggests "real property tax" paid by its members for land not under their ownership as a part of being an HOA. If this organization is LEGALLY an HOA, can they keep non-profit status and forgo property tax?
A: Most HOAs are already incorporated as non-profit corporations. The status of the entity (profit/non-profit/corporation or unincorporated association) will likely have no bearing on the real estate tax obligations of entity. Sometimes the purpose of the organization can affect the obligation to pay real estate taxes. This is typically an issue governed by state law. When people talk about “non-profits” they are sometimes talking about income tax ramifications at the personal level (can I deduct this payment from my income for federal taxes?), sometimes talking about tax ramifications at the entity level (does this organization pay taxes on its income?), and sometimes talking about state law which governs the formation and activities of the organization. The issue of how federal and state laws and regulations will affect a particular HOA are incredibly situation specific, and would require review of the facts involved and the jurisdiction it is located in. Many associations do not have any taxable real estate, because the common areas are all owned jointly by the members of the community.
Q: Can the HOA president or any board member purchase things without a vote from the community that pay the dues?: Can the HOA president or any board member purchase things without a vote from the community that pay the dues?
A: To answer such a question I would typically look first to the governing documents for the HOA (CC&Rs, Bylaws, etc.). These often will spell out the authority of the officers of the HOA to make decisions and purchase “things”. We advise board members only to act within the authority granted to them by the governing documents. In most cases, no vote of the community is required for the board to act on its behalf. The members vote on who fills the board, and that is often the limit of their influence. In almost all cases, boards (as an entity) are granted the power to purchase things and enter into contracts on behalf of the association, with few limits on their authority. Typically the limits will be defined by dollar amounts (as for capital improvements), type of purchase (as with restrictions on buying property), or time (as with contracts in excess of one year). Whether or not the individual officer of the corporation can buy “things” depends on if he is acting with the authority of the board. Whether or not a board member has acted outside their authority will depend in many respects on the specific facts and circumstances about what is bought, and if it is reasonable. Boards can ratify decisions after the fact to cure any procedural irregularities in how something was purchased. And, typically the courts will not revisit decisions by the board that are within any reasonable range.
Q: Can we as a homeowners association change the wording in the homeowners manual?: The question that I have is; If the builder has put in the HOA laws that he does not have to pay any dues then when we take it over can we change the wording to make him pay dues?
A: The “homeowners manual” probably contains a variety of documents which could include CC&Rs, bylaws, rules and regulations or more, which collectively define the rights and obligations of the owners, and the procedures for dealing with most matters that come up within the community. Collectively we refer to these as the “governing documents” for any association. Each document within the set has a different purpose, and has a different requirement for amendment or modification. House rules can often be amended by a vote of the board of directors. The CC&Rs or Declaration would require a formal vote of the owners. Some provisions, based on the applicable state law, require different levels of approval, and some changes would require 100 percent of the owners, and even approval from the banks who gave loans secured by the homes. So the short answer is yes, you can change wording, but depending on what you want to accomplish, the process may be complex and require the approval of a super majority of your owners.
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