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Guidance -- FAQ

  1. How do I know whether an audit of my HOA is required?
  2. How much will an audit cost my HOA?
  3. Does an HOA have to pay income taxes
  4. Who is responsible if HOA records are not properly maintained?
  5. Are homeowner association assessments tax deductible?
  6. Any suggestions for properly conducting meetings of the board of directors?
  7. What does "nonjudicial foreclosure" mean?

How do I know whether an audit is required ?

The originating documents of the Association determine whether an audit is required.  These documents include the declaration of covenants, bylaws, and the articles of incorporation.

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How much will an audit cost my homeowners association?

The cost of an audit depends on several factors such as whether the association is professionally managed, the frequency of assessments, the number of homeowners, the quality of records, etc. Most of the needed information can be obtained over the phone. Call me for a free estimate.

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Do homeowners associations have to pay income taxes?

Yes.  Most homeowners associations must pay federal and state income taxes. Sometimes local taxes are required. However, the amount of tax due can be minimized by implementing certain procedures. Many associations are paying twice the the tax they should. Others are not paying sufficient taxes, which subjects them to additional penalties and interest. Federal taxes are due March 15th for calendar year taxpayers.

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Who is responsible if HOA records are not properly maintained?

The Board of Directors (and specifically the treasurer) of the association are responsible for properly maintaining the records of the association.

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Are homeowners association assessments tax deductible?

Dues are not deductible by a owner-occupant. Theoretically, the portion of an owner's assessment which has been earmarked by the association for it's reserves, if done properly, can be added to the cost basis of the owner's home. However the additional recordkeeping required of the owner and the small amount of money involved make this not cost effective, in most cases. On the other hand, if an owner rents out his residence, association dues are deductible as "ordinary and necessary" expenses on Schedule E of the owner's tax return.

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Any suggestions for properly conducting meetings of the board of directors?

  1. All meetings must be open. However, certain subjects can be discussed in private if:

  1.  it specifically qualifies  i.e. relates to personnel matters, consultation with legal counsel, pending or probable litigation, contracts, rules violations.

  2. specific procedure are followed for going into executive session (i.e. a motion is made, adopted and recorded in the minutes; the session is limited to subjects covered in the motion)

  3. members vote on any motion in open session, not in the executive session.

  1. Work sessions are treated the same as meetings, and so are informal gatherings of board members where issues are discussed.

  2. Directors must receive notice of meetings per the requirements of the bylaws.

  3. Notice to owners of meetings must be "published where it is reasonably calculated to be available to a majority of the lot owners" and sent by mail to owners filing an annual written requests.

  4. Agendas and board packets must be available to owners at the same time as they are available to board members.

  5. BOD meeting must include an owners forum. Reasonable rules regarding it can be adopted.

  6. Minutes of meetings must be taken and made available to owners upon request. Minutes must state when the meeting was called to order, who was present, any motions made, who made them, who seconded them, who voted which way on them, and when the meeting adjourned.

  7. Owners may record any open meeting.

  8. If a meeting is done by telephone or video conference, at least two members must be present at the meeting site, and the equipment must allow owners to hear the remote directors.

  9. Secret ballots at board meetings are not allowed except when electing officers.

  10. Voting should not be done by e-mail and no decisions should be made outside of meetings, except in extreme emergencies.

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What does "nonjudicial foreclosure" mean?

The homeowner association is able to foreclose the lien recorded against the owner's home without going to Circuit Court to obtain a court order to authorize the sale.  The Property Owners' Association Act 55-516 provides the process that must be followed. The Act requires that a lien be recorded within 12 months of the delinquency and that foreclosure be brought within three years from the date of recordation. The Association's governing documents should be examined for further restrictions of the association's lien rights.

There are many factors to consider before commencing nonjudicial foreclosure proceedings, including:

  • The amount owed to the association
  • Whether the owner been referred to legal counsel for collection more than once
  • Whether the Association has gone to court to collect assessments more than once
  • Whether the association paid more in cost and legal fees for past collection action than what was recovered.
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Copyright 2005  CRM, CPA. All rights reserved.
Revised: 12/16/05.