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Subject: homeowner compensation through services.
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Author Messages
JayF1
(Washington)

Posts:51


02/12/2018 8:37 AM  
Hi Everyone,

I have a homeowner who is far behind in his account & in the last stage of our legal process which foreclosure. The new board inherited this situation & wonder what is our options. In the past, this homeowner has a license & bond landscaping business. The previous boards have used his services in order to credit his account. This is a form of compensation & saves us money. His bids are far cheaper than what the Board would pay for other contractors that offered.

I read an internet article that states nonprofit organizations must not compensate any homeowner by default. I don't want to jeopardize our corporate shield and our ByLaws & CCRs only state no compensation for Board & ACC members rendering their services, nothing else. I don't know if this common practice. In a way, it appears to be a violation & is not fair to the other homeowners. I would suspect this to be an exception since the Board has to deal with this far outstanding account in some way. I would like to know what other Boards would do in similar situation. Any advice is greatly appreciated.
MelissaP1
(Alabama)

Posts:7005


02/12/2018 9:01 AM  
NEVER EVER EVER EVER EVER compensate dues money owed the HOA by services/compensation. Did I mention NEVER EVER EVER??? What a mess! Do you see why? How do you now know when your HOA and for what amount to lien because they were compensated by use of service? IF someone wants that, you pay them the amount of the dues money but never instead of.

You now have a mess on your hands and the MC should have known better. It's time to get rid of someone who allows this kind of arrangement. That is extremely not above board activity.

Former HOA President
JayF1
(Washington)

Posts:51


02/12/2018 9:39 AM  
Thank Melissa, I was afraid of that. Can you elaborate more or be specific on the major concern/liabilities we are facing. I like to be on the same page with you. At least get the key major points what we are exposed to in this mess. Anyone else for advice would be appreciated.
JayF1
(Washington)

Posts:51


02/12/2018 9:41 AM  
I am also wondering what is our recourse and if legal counsel is recommended. Sorry, such a newbie. I need to know what I am getting into going forward.
MelissaP1
(Alabama)

Posts:7005


02/12/2018 9:53 AM  
It is not a liability just poor bookkeeping. Your HOA did not need to enter a contract with a person who owes money to it. The best bet now is to set a line in the sand and start from there. For us we have a policy of 6 months behind we lien. 1 year we CONSIDER foreclosure. Never foreclose on property already being foreclosed by the bank. Plus if active duty one can't foreclose. Foreclosure is a stop the bleeding ONLY act. Nothing wrong with keeping a lien long term and active. It accumulates over time till the owner sells.

So make sure your HOA has a policy of when it liens and when it considers foreclosure. Once that is established, then pursue those in violation by notifying them by certified letter of intent. Your HOA can negotiate the late fees/interest if it wants in a way to set up a payment plan. Otherwise NEVER EVER do it out of compensation for work.

Former HOA President
JohnC46
(South Carolina)

Posts:7191


02/12/2018 11:33 AM  
Posted By MelissaP1 on 02/12/2018 9:53 AM
It is not a liability just poor bookkeeping. Your HOA did not need to enter a contract with a person who owes money to it. The best bet now is to set a line in the sand and start from there. For us we have a policy of 6 months behind we lien. 1 year we CONSIDER foreclosure. Never foreclose on property already being foreclosed by the bank. Plus if active duty one can't foreclose. Foreclosure is a stop the bleeding ONLY act. Nothing wrong with keeping a lien long term and active. It accumulates over time till the owner sells.

So make sure your HOA has a policy of when it liens and when it considers foreclosure. Once that is established, then pursue those in violation by notifying them by certified letter of intent. Your HOA can negotiate the late fees/interest if it wants in a way to set up a payment plan. Otherwise NEVER EVER do it out of compensation for work.




I agree.
TimB4
(Virginia)

Posts:15245


02/12/2018 2:15 PM  
Jay,

Typically, the governing documents specify that the costs of the Association are shared equally (or by percentage) by the members. Waiving assessments can be seen as a violation of that section of covenants.

Additionally, the IRS sees assessments as a debt owed. Waiving of all or part of the debt is considered income by the individual and the Association should be issuing a form 1099-C.
see:
IRS Topic Number 431 - Canceled Debt – Is It Taxable or Not?
IRS Publication 4681
IRS Form 1099-C, Cancellation of Debt

Melissa is correct that it is also messy bookkeeping and your auditor will explain it to you.



Regarding foreclosures, I agree it's a waste of money to foreclose on a property that someone else is foreclosing on. You will still be paid based on the order of liens.

I disagree that you can not foreclose on military personnel (active duty or Reserve personnel recalled for active duty). You can. It takes a whole bunch of steps and time as it requires a court order. A lot will depend on where the service member is stationed. See:
SCRA: Servicemembers Civil Relief Act Overview from Military.com
SERVICEMEMBERS CIVIL
RELIEF ACT (“SCRA”)
The act itself

JayF1
(Washington)

Posts:51


02/12/2018 10:42 PM  
Thank you- John, Melissa, & Tim. We are so lucky to have you all as a great resource in matters like this.

Just for confirmation & formality, is it safe to say we can only place one Lien per property? I am questioning this because of the timeline, especially when a lien has been applied 5 years ago. That's how bad this situation has gone on. I know the property can have multiple liens from other companies like utilities. I also know, there is some formal lien notice letter sent to the homeowner prior the lien being applied. My concern is this lien was applied years ago and we do not have any formal copy of the lien notice due to the secretary rotation and there was no formal email account for communication with our lawyer by then. With your experiences, what is the recommended practice to deal with liens?
SueW6
(Michigan)

Posts:220


02/13/2018 9:57 AM  
Liens have to be renewed. Do that now.

RE: the association "crediting" a homeowner's account using service payments.

It's a bookkeeping mess, as stated, but . . .

I know one association that has made a check out to "XYZ Landscaping OR Sunnyside Association." The check was endorsed by the Association. The monies were then credited to the homeowner's account, but he never had the check in his hands.

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