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Subject: Changing the purpose of a special assessment AFTER it has been collected
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BoA
(Arizona)

Posts:2


03/08/2019 10:19 AM  
Is it in breach of any Arizona statutes to collect a special assessment for the purpose of replacing roofs and then later collect an insurance settlement for the roofs and then repurpose that settlement to a capital reserve fund rather than refunding the special assessment? I remember reading that a special assessment could not be repurposed post factum. Can anybody point me to the statute applying or prior case law or AZ Department of Real Estate rulings, please?
SheliaH
(Indiana)

Posts:2464


03/08/2019 2:28 PM  
Did you ask the board why it decided not to refund the money? If so, what was the response? It may be the insurance company was dragging its feet on settling the claim and if the roofs really needed replacement sooner rather than later, the board may have decided to get the special assessment to ensure the work would be done while continuing the fight with the insurance company.

The current state of your reserves might also be an issue - evidently, there wasn't enough money to cover replacement so the special assessment was necessary. This can happen if your reserves were already underfunded, so by putting the special assessment money in reserves, it can still be used to pay for major repairs or replacement to the common areas, such as roofing, so you really haven't lost anything. That said, it sounds like the board could have been more candid in explaining what the options were and why they took this particular action.

As for the "is this legal" question, I think there are some Arizona people who may answer your question, but if not, you'll need to consult a private attorney. Most states have their statutes online, so you might want to visit your legislature's website - https://www.azleg.gov/arstitle/ - and revve up the search function.

MelissaP1
(Alabama)

Posts:8079


03/08/2019 5:10 PM  
Typically you never refund money. It just complicates so much. It sounds like insurance picked up the claim after the money came in. So them putting the money into a fund for future needs like the roof replacement makes sense. Insurance may not pick up the next claim. Your all going to need to fund this project again down the road.

Former HOA President
SheilaJ1
(South Carolina)

Posts:56


03/08/2019 5:29 PM  
Bad advice by Melissa.

Far as I know, you will have to refund. It’s not so much AZ law but a CPA would have to be contacted to check if you don’t meet the return filing’s test requirements.
GeorgeS21
(Florida)

Posts:1208


03/08/2019 7:22 PM  
Special assessments are approved for a special purpose.

If there is no need fir the funds, they should be returned.

An attorney would love to retrieve the funds.
RoyalP
(South Carolina)

Posts:698


03/08/2019 7:23 PM  
Posted By MelissaP1 on 03/08/2019 5:10 PM
Typically you never refund money. It just complicates so much. It sounds like insurance picked up the claim after the money came in. So them putting the money into a fund for future needs like the roof replacement makes sense. Insurance may not pick up the next claim. Your all going to need to fund this project again down the road.





PART of Melissa's post makes sense.

however

Since the replacement roof had NOT been properly funded via assessment into reserve fund, assessments need to be raised in order to fund the NEXT replacement.

As the money is already there via a 'special' assessment ....................... ?


BEST OF LUCK
RichardP13
(California)

Posts:3511


03/08/2019 10:54 PM  
The proper procedures would be:

1. If the Board decided on their own for the Special Assessment, they should refund the monies back to the homeowners.
2. If the homeowners voted on the Special Assessment, it would be up to the homeowners to re-vote, either refund or place into reserves.

The Special Assessment was for a specific purpose, not a catch-all or funding the reserve.

None of Melissa's post makes sense.

Been there, Done that
RoyalP
(South Carolina)

Posts:698


03/09/2019 6:31 AM  
valid P/O/V
MarkM19
(Texas)

Posts:297


03/09/2019 6:49 AM  
What drives me crazy is the lack of detail in the OP. How much was the settlement from the insurance company? How much was the special assessment? How long ago was in collected? How many units are in the association? If they went the refund route how many homes have changed hands since it happened?

I am looking at it from this angle. The reason for the special assessment was an underfunded reserve. I am guessing that a major part of the reserve budget should have been for the roofs in the HOA. Setting the money aside for the next roof issue is a good use of the funds and the money will still be used for it's intended purpose.
MelissaP1
(Alabama)

Posts:8079


03/09/2019 7:23 AM  
I am with you Mark on this one. It's why I posted that if the money was collected because of hindsight issues, then don't see the problem.

Let's say this scenario as this happens in roof replacement game. They realized had to replace the roofs of their HOA. They agreed. Went to their reserve fund and found it less than adequate to cover the costs. (Maybe just had an in-mind amount of the expense no real #'s. It happens). So they start the process of approving a special assessment. As that process takes ALOT of time just to approve and collect monies. They then shopped for a roof contractor. Well they get one of those Roof contractor companies that come around saying "Oh insurance money will pay for that". So guess what? The HOA is on the phone making a claim to their insurance company to pay the Roof contractor. It may be that they do qualify because of recent storms etc... So now they get their insurance claim and give it to the roofing contractor.

Now what to do with the money they collected? Well considering they just made an insurance claim, some of it should have paid the deductible. It also most likely means their insurance expenses will be increasing due to the claim. It could be on the border of being cancelled or higher deductible.

So the best thing for the HOA to do is to put the money back into their Reserve fund so they won't be subject to insurance claims. It may be insurance won't cover next time or qualify for a claim. The next roof project will be a different monster.

I don't think anyone should be returned their special assessment money. It's still going toward reserves and the purpose of the expenses of the HOA. If it was going to fund a whole different project then may show up at a meeting to request earmarking the money for roof repairs.

Roofing companies come to my door all the time especially after storms. They claim the insurance will pay for repairs due to recent storm damages etc... Be careful. This is NOT always the case. Most of the time this is a scam. Something many people fall for every year without educating themselves. The HOA is just as easily scammed by the roof sales people too.

Former HOA President
AugustinD


Posts:1575


03/09/2019 8:21 AM  
BoA, the Arizona statutes do not seem to have anything on special assessments. Various Arizona law sites say the governing documents alone will control how special assessments are handled. E. g. see http://www.shawlines.com/documents/2017-Summary-of-Arizona-Homeowner-Association-Law.pdf

What was the mechanism for enacting the Special Assessment? What do your community's governing documents say about enacting a Special Assessment?

Was there a Special Meeting of the Members where a vote was taken for the Special Assessment, as required by your community's governing documents, say? If so, I think this weighs heavily in favor of refunding the money.

What do you have in Minutes of the Association that talks about the Special Assessment?

Is your community legally a condominium or is it legally a homeowners' association? This should be in your community's Articles of Incorporation.
JohnC46
(South Carolina)

Posts:8267


03/09/2019 8:44 AM  
Posted By RichardP13 on 03/08/2019 10:54 PM
The proper procedures would be:

1. If the Board decided on their own for the Special Assessment, they should refund the monies back to the homeowners.
2. If the homeowners voted on the Special Assessment, it would be up to the homeowners to re-vote, either refund or place into reserves.

The Special Assessment was for a specific purpose, not a catch-all or funding the reserve..




I agree.
RichardP13
(California)

Posts:3511


03/09/2019 8:59 AM  
You went to the membership and told them you needed money to repair a roof that you didn't have funds for after an incident that later turns out was covered by the insurance company and paid out. The emergency that the special assessment was voted on NO LONGER exists.

I am assuming by what the OP stated that the membership voted for the special assessment. In the same matter in which the membership approved the special assessment for the roofs they should also be given the opportunity to vote on what happens with money.The advice that the money is needed for other projects down the road is pure CRAP

I thought this site was supposed to exist to give people sound opinions.

Let's say an election is coming up and a person wants on the Board but couldn't get elected and they go to a current Board and one of the members wasn't going to run again but will do so and then resign allowing the Board to then appoint that other person to fill out their term.

Can it be done, sure, should it, no.


Been there, Done that
GeorgeS21
(Florida)

Posts:1208


03/09/2019 9:04 AM  
Melissa ... it is no longer a special assessment - and should be returned.

Again, I believe a lot of attorneys would love to have a simple case like this.
SheilaJ1
(South Carolina)

Posts:56


03/09/2019 9:41 AM  
useless response by Melissa

The other responses are correct an attorney and CPA needs to notified. Otherwise you risk an audit.
SheliaH
(Indiana)

Posts:2464


03/09/2019 9:59 AM  
The poster hasn't returned yet to respond to all this and I have to say I concur with Mark. Sometimes there really is a simple answer to a question, but in HOA land, I've found very little is simple. Most of the time, people ask a question and after getting a few responses, adds more information that turns the issue on its head. You don't have to provide ALL the details, but context is everything and necessary to provide a halfway decent answer that the poster can consider.

As for "useful vs. useless" information, we are all offering our opinions, so just because you disagree with something doesn't mean it's wrong or right. Take a response for what it is - in the end, you have to make up your own mind anyway.

Now, depending on the rest of the information Mark mentioned, a refund may be warranted, although I still say it might be better to simply put it in reserves, especially if there's an underfunding issue. However, instead of cutting a multitude of checks, the board might also credit the special assessment to individual accounts. That may be more useful than a mere refund because it could prevent an increase in next year's assessments. In the present, not having to pay an assessment for the next few months (depending on the amount) could give people more breathing room in their household budgets. If homeowners voted on the special assessment, I think they should also vote on whether the money should stay in reserves or be used as a credit.
GenoS
(Florida)

Posts:2892


03/09/2019 11:20 AM  
Remember, when you SPECIAL ASSESS the HOA you're SPECIAL ASSESSING yourself.
RichardP13
(California)

Posts:3511


03/09/2019 11:29 AM  
I didn't take that phrase into account, my bad.

Been there, Done that
RoyalP
(South Carolina)

Posts:698


03/09/2019 12:00 PM  
Posted By MarkM19 on 03/09/2019 6:49 AM
What drives me crazy is the lack of detail in the OP. How much was the settlement from the insurance company? How much was the special assessment? How long ago was in collected? How many units are in the association? If they went the refund route how many homes have changed hands since it happened?

I am looking at it from this angle. The reason for the special assessment was an underfunded reserve. I am guessing that a major part of the reserve budget should have been for the roofs in the HOA. Setting the money aside for the next roof issue is a good use of the funds and the money will still be used for it's intended purpose.




my 'take' as well

but

? the legalities ?
RichardP13
(California)

Posts:3511


03/09/2019 12:22 PM  
Posted By MarkM19 on 03/09/2019 6:49 AM
I am looking at it from this angle. The reason for the special assessment was an underfunded reserve. I am guessing that a major part of the reserve budget should have been for the roofs in the HOA. Setting the money aside for the next roof issue is a good use of the funds and the money will still be used for it's intended purpose.


Then the association needs to make that case.

Been there, Done that
GeorgeS21
(Florida)

Posts:1208


03/09/2019 12:27 PM  
If I were a board member, I would insist the Board put the topic on the next Board agenda. At that meeting, I would provide a motion to return the funds to the member who paid.

If the motion did not pass, I would probably resign from the Board, in order for the lawsuit discovery to show my disagreement, and hence innocence when the HOA gets taken apart.

This is a big deal - please treat it as such.
RoyalP
(South Carolina)

Posts:698


03/10/2019 7:52 AM  
Posted By GeorgeS21 on 03/09/2019 12:27 PM
If I were a board member, I would insist the Board put the topic on the next Board agenda. At that meeting, I would provide a motion to return the funds to the member who paid.

If the motion did not pass, I would probably resign from the Board, in order for the lawsuit discovery to show my disagreement, and hence innocence when the HOA gets taken apart.

This is a big deal - please treat it as such.





Resignation not necessary.

Recording in the minutes of the motion and the "motioner's" specific AYE vote is sufficient protection.
KellyM3
(North Carolina)

Posts:1366


03/10/2019 9:05 AM  
Posted By BoA on 03/08/2019 10:19 AM
Is it in breach of any Arizona statutes to collect a special assessment for the purpose of replacing roofs and then later collect an insurance settlement for the roofs and then repurpose that settlement to a capital reserve fund rather than refunding the special assessment? I remember reading that a special assessment could not be repurposed post factum. Can anybody point me to the statute applying or prior case law or AZ Department of Real Estate rulings, please?




BOA,

Sounds like the HOA wasn't sure it would get insurance money but was "bailed out" when the replacement was covered under the policy. If that's true and not a true "bait n' switch," then the special assessment covers a shortage in the Capital Reserve for a roof. The capital reserve still needs roof money and is underfunded.

That's IF the special assessment was done with no expectation the insurance company would cover the jog.

MelissaP1
(Alabama)

Posts:8079


03/10/2019 9:33 AM  
That is EXACTLY what I am saying Kelly! They probably found a roof contractor who told them they could make it an insurance claim after they collected the money. Happens all the time with roofing contractors. Sometime the "scam" works and other times it doesn't. FYI: Do NOT believe a roofing company that comes to your door telling you that due to recent storms you qualify BS... You will be holding the bag.

Also said by doing this as an insurance claim, they just made a claim on their insurance. Which has consequences. That of higher payments, deductible, or added risk. The Insurance carrier may not do it next time as it may be replaced due to aging issues not damage. Factors need to consider.

Besides if a HOA is responsible for roof repairs. They should have that money in their reserves for it at any time...

Former HOA President
GeorgeS21
(Florida)

Posts:1208


03/10/2019 11:56 AM  
Doesn’t matter - I would bet there is a whole heap of discoverable data that would directly prove the special assessment was for a specific purpose.

Coming up with rationale for not returning it sounds simple ... but won’t be if someone takes the HOA to court.

Final from me ... I would NOT approve keeping it.
GenoS
(Florida)

Posts:2892


03/10/2019 1:15 PM  
I agree wholeheartedly with George.
SheilaJ1
(South Carolina)

Posts:56


03/10/2019 3:03 PM  
Posted By MelissaP1 on 03/10/2019 9:33 AM
That is EXACTLY what I am saying Kelly! They probably found a roof contractor who told them they could make it an insurance claim after they collected the money. Happens all the time with roofing contractors. Sometime the "scam" works and other times it doesn't. FYI: Do NOT believe a roofing company that comes to your door telling you that due to recent storms you qualify BS... You will be holding the bag.

Also said by doing this as an insurance claim, they just made a claim on their insurance. Which has consequences. That of higher payments, deductible, or added risk. The Insurance carrier may not do it next time as it may be replaced due to aging issues not damage. Factors need to consider.

Besides if a HOA is responsible for roof repairs. They should have that money in their reserves for it at any time...




Don’t listen to this crap advice.

Melissa sides with the HOA’s board each time. She’s always ready to waste homeowners money.
GenoS
(Florida)

Posts:2892


03/10/2019 3:24 PM  
Posted By SheilaJ1 on 03/10/2019 3:03 PM
Don’t listen to this crap advice.

Melissa sides with the HOA’s board each time. She’s always ready to waste homeowners money.

I disagree with Melissa about 50% of the time, but this is harsh. I don't remember seeing anything to suggest she's "always ready to waste homeowners money".
MelissaP1
(Alabama)

Posts:8079


03/10/2019 3:46 PM  
Uhm if your on the board or not, it is the homeowner's money. Duh. Or did I miss a secret fund of HOA's besides homeowners? A HOA is ONLY funded by it's members for it's members. The board is just elected to budget the money of the HOA as a WHOLE.

I hoped that I did manage the homeowner's money so it wasn't wasted on stupid things like knee-jerking reacting to a lawyer. So sue me for protecting ALL the member's money and not wasting it on some stupid things some owners want or think they deserve. This case I don't think it benefits ANY member to get their money back. It benefits the HOA as a WHOLE to keep it in the reserves to avoid another special assessment for the same thing down the road.

Former HOA President
SheilaJ1
(South Carolina)

Posts:56


03/10/2019 4:50 PM  
You don’t know that, some details are missing here.

They will have to seek proper advice.

Sorry for being harsh. Let’s see if the author can fill in some gaps.
RichardP13
(California)

Posts:3511


03/10/2019 4:58 PM  
You know the way I look at is that if the president of the United States doesn't have to follow any rules, then why should it matter what a a small group of people running an insufficient HOA does.

Been there, Done that
MarkM19
(Texas)

Posts:297


03/10/2019 5:37 PM  
Richard,
I have been reading your comments for many years. You are usually right on many issues. This is the second time you took a stab at the President. Keep your politics to yourself if you don't mind. This country is divided enough without your help.

I am sure you are a good Property Manager and maybe board member but you picked the wrong political party to support IMO.

Remember AOC says the World is going to end in 12 years if we don't stop flying in Planes and driving cars.
RichardP13
(California)

Posts:3511


03/10/2019 5:47 PM  
Posted By MarkM19 on 03/10/2019 5:37 PM
Richard,
I have been reading your comments for many years. You are usually right on many issues. This is the second time you took a stab at the President. Keep your politics to yourself if you don't mind. This country is divided enough without your help.

I am sure you are a good Property Manager and maybe board member but you picked the wrong political party to support IMO.

Remember AOC says the World is going to end in 12 years if we don't stop flying in Planes and driving cars.



Sorry, I have been a Republican for 48 years.

Been there, Done that
MarkM19
(Texas)

Posts:297


03/10/2019 6:05 PM  
Richard,
I guess I owe you an apology. I am a proud American and even though I did not care for the last president I was always careful to keep my views to myself. The country needs to work together to solve the many problems we have.

Lets talk HOA and help in the areas we can actually make a difference.
BoA
(Arizona)

Posts:2


03/11/2019 7:26 AM  
Thanks for the many replies. The reserve fund forecast shows that all known future items will have funding, including roofs the next time. I will review the CCCRs for this HOA again and go talk to an attorney.
JohnC46
(South Carolina)

Posts:8267


03/11/2019 8:00 AM  
If the assessment was originally said to be able to fill the Reserves for pending items such as roof replacement then later an insurance claim happened to pay for roof replacement, I would keep the assessment in the Reserves.

If the assessment was specifically defined in that it would be used for roof replacement and then n insurance claim paid for it, I would return it.
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