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Subject: Condo HOA Board - Dues as Compensation?
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JenniferD8
(Michigan)

Posts:30


10/25/2019 8:32 AM  
I'm a new member on my condo HOA board. Questioning some of the current processes. Our bylaws allow for compensation if it's voted on by the members and receive a 2/3rd vote. This occurred in the early 2000's and passed as evidenced by meeting minutes. No amount of compensation was ever determined. Since then, board members have compensated themselves by eliminating the need to pay monthly dues. Doesn't sit right - - doesn't all compensation need to be reported using a 1099?

Are there other condo HOAs out there that handle it this way? Seems a tad shady (maybe illegal)?

DouglasK1
(Florida)

Posts:1466


10/25/2019 8:47 AM  
Posted By JenniferD8 on 10/25/2019 8:32 AM
I'm a new member on my condo HOA board. Questioning some of the current processes. Our bylaws allow for compensation if it's voted on by the members and receive a 2/3rd vote. This occurred in the early 2000's and passed as evidenced by meeting minutes. No amount of compensation was ever determined. Since then, board members have compensated themselves by eliminating the need to pay monthly dues. Doesn't sit right - - doesn't all compensation need to be reported using a 1099?

Are there other condo HOAs out there that handle it this way? Seems a tad shady (maybe illegal)?



Your concerns are well founded. Do your CCRs/Covenants say anything about this? CCRs/Covenants overrule bylaws so any bylaw in conflict would not be valid. Do they say anything about director compensation? Ours say
4. UNIFORM RATE OF ASSESSMENT. All regular and special assessments shall be at a uniform rate for each lot in XXXHOA
Our bylaws also say that directors can't be compensated but of course the bylaws are relatively easy to change vs. the CCRs.

The general consensus on this forum is that the IRS would consider a waiver or any other form of compensation to be income and should have 1099s issued. There have also been posts suggesting that some legal protections afforded volunteer directors would be lost if the directors are compensated.

Escaped former treasurer and director of a self managed association.
KerryL1
(California)

Posts:6735


10/25/2019 9:07 AM  
Pay attention to Douglas, Jennifer.

JenniferD8
(Michigan)

Posts:30


10/25/2019 9:16 AM  
Thanks for the quick response. I will look into the CCR's this evening to see if there's any mention of compensation.
JenniferD8
(Michigan)

Posts:30


10/25/2019 11:12 AM  
I did a search of recorded documents on my county's website, since it indicates that the CCRs would be recorded there. Well, there's no such document listed. Also,checked with a long-standing board member. He cannot recall such a document. Could it be possible that there are no CCRs for a condo development??
KerryL1
(California)

Posts:6735


10/25/2019 11:19 AM  
Other names for "CC&Rs' are: covenants, declarations, deed restrictions. If you have the title company (escrow company, attorney) docs from when you bought your condo, they should be noted in them.

Our (condo) CC&Rs say directors may not be compensated.
SheliaH
(Indiana)

Posts:2776


10/25/2019 12:03 PM  
This IS NOT a good idea. first of all, if the board members aren't paying dues in exchange for them serving as board members, that's a form of compensation which is reportable to the IRS and your state (and possibly local) tax authorities. This means income taxes come into play - do you really want to add this to whatever else you're going through to prepare your taxes.

Second, it throws off the annual budget. All of the expenses of the association are to be shared by every homeowner, and that's what the board members are. If they're not going to pay, that reduces the pot of money available for routine expenses and reserves, and the other homeowners would have to pay more to make up for that money.

Finally, if board members are going to be paid, there should be another way of evaluating their performance to see if they should continue to serve, and I'm not talking about just voting them off. I think they should be responsible for pursuing continuing education so they can learn how to do the job more effectively - and since they're not paying assessments, they can use the money they're saving from that to pay for it. Or the association could pay - but make all training mandatory, complete with tests to show how well they've learned. There might also be work improvement plans for board members who are failing at the job and if they don't shape up within a certain amount of time, they should be booted from the board. Of course, you'll have to figure out what the job performance standards are, who should judge how well they're doing, etc.

See how twisted all this can get?

Check your documents and bring all this to the board, telling them they need to run this by the association attorney and all the homeowners if they want to pursue this. If the homeowners are ok with it, then talk to tax professionals about setting things up so the proper tax forms are filed.
DouglasK1
(Florida)

Posts:1466


10/25/2019 12:13 PM  
Posted By JenniferD8 on 10/25/2019 11:12 AM
I did a search of recorded documents on my county's website, since it indicates that the CCRs would be recorded there. Well, there's no such document listed. Also,checked with a long-standing board member. He cannot recall such a document. Could it be possible that there are no CCRs for a condo development??


Normally the Covenants/CCRs actually create the condo association as a legal entity, and it is the document that is attached to the deed. If the documents are not found on the website, it might take a visit whatever county office holds the records. How old is your condo. My last county had records all the way back to the 1800's available online, but my current county only has them to 1981, anything before that is still on paper or microfilm or something so not searchable on-line. Some smaller counties might not have records on-line at all.

Escaped former treasurer and director of a self managed association.
MarkW18
(Florida)

Posts:304


10/25/2019 12:29 PM  
About as much chance as landing a human on the surface of the Sun.
JeffT2
(Iowa)

Posts:503


10/25/2019 1:44 PM  
Posted By DouglasK1 on 10/25/2019 12:13 PM
Posted By JenniferD8 on 10/25/2019 11:12 AM
I did a search of recorded documents on my county's website, since it indicates that the CCRs would be recorded there. Well, there's no such document listed. Also,checked with a long-standing board member. He cannot recall such a document. Could it be possible that there are no CCRs for a condo development??


Normally the Covenants/CCRs actually create the condo association as a legal entity, and it is the document that is attached to the deed. If the documents are not found on the website, it might take a visit whatever county office holds the records. How old is your condo. My last county had records all the way back to the 1800's available online, but my current county only has them to 1981, anything before that is still on paper or microfilm or something so not searchable on-line. Some smaller counties might not have records on-line at all.



In Michigan the CCRs of a condominium are called a master deed. That is what you are looking for. The bylaws will be an attachment to the master deed.
JenniferD8
(Michigan)

Posts:30


10/25/2019 5:08 PM  
Thanks for steering me in the right direction. I reviewed the Master Deed, which didn't address any board-related items that I needed.

I did, however, find the Articles of Incorporation. It discussed board members being volunteer directors within the meaning of Act 170 of the Public Acts of 1987. (The condo development was established in the late 80s).

From my research, I believe that the Articles of Incorporation Trump the bylaws. If that's the case, then I'm opening up a can of worms.
GenoS
(Florida)

Posts:3383


10/25/2019 5:51 PM  
Posted By JenniferD8 on 10/25/2019 8:32 AM
I'm a new member on my condo HOA board. Questioning some of the current processes. Our bylaws allow for compensation if it's voted on by the members and receive a 2/3rd vote. This occurred in the early 2000's and passed as evidenced by meeting minutes. No amount of compensation was ever determined. Since then, board members have compensated themselves by eliminating the need to pay monthly dues. Doesn't sit right - - doesn't all compensation need to be reported using a 1099?

Yikes.
SueW6
(Michigan)

Posts:626


10/25/2019 6:23 PM  
Unless the Michigan Condo Act prohibits compensation for board members the answer is No - unless your bylaws state that they can be compensated.

Is it a good idea? Who knows. Past years may have made it impossible to fill board position and waiving dues acted as an incentive.

How much are we talking about? There is the $600 threshold for 1099-Misc Income statements to be issued.
JenniferD8
(Michigan)

Posts:30


10/25/2019 6:43 PM  
The amount for each board member definitely exceeds $600 per year.
SteveM9
(Massachusetts)

Posts:3441


10/25/2019 6:57 PM  
Well, the issue is they are not paying dues. There is no record of them paying dues. And legally, the HOA board probably does not have the right to waive dues. Most do not.

The second issue is there is no record of the HOA compensating them.

So any homeowner at any time can bring up this legal issue of them not paying dues and they will owe all back dues that were never paid. Yes, this happens.

SteveM9
(Massachusetts)

Posts:3441


10/25/2019 6:58 PM  
In a nut shell,

They need to pay their dues and record it.
If the HOA is compensating them, they need to write a check.
NpS
(Pennsylvania)

Posts:3921


10/25/2019 7:35 PM  
Posted By JenniferD8 on 10/25/2019 5:08 PM
I did, however, find the Articles of Incorporation. It discussed board members being volunteer directors within the meaning of Act 170 of the Public Acts of 1987. (The condo development was established in the late 80s).

From my research, I believe that the Articles of Incorporation Trump the bylaws. If that's the case, then I'm opening up a can of worms.


Interesting idea. Worth getting clarification from a local corporate or HOA lawyer.

Sikubali jukumu. Read all posts at your own risk.
SueW6
(Michigan)

Posts:626


10/26/2019 7:06 AM  
The OP said in the first paragraph: bylaws allow compensation with 2/3 vote.

So if she has a problem, lobby your fellow members to amend the bylaw or defeat the voting threshold. She didnt say if it was an annual vote of the Members or a vote of the Board itself ( which would be odd)
TimB4
(Virginia)

Posts:16555


10/26/2019 7:59 AM  
Typically, Bylaws allow Officers to be compensated.

Remember that Directors and Officers are two different positions.

Unfortunately, it's also typical for the elected Directors to serve as Officers. This tends to give the perception that the "Board" is being paid.
In reality, it's likely that the Officers are being paid. Of course, this point is subject to the actual language in the OP's bylaws.

In my opinion, NEVER waive assessments. Typically, this is a violation of the covenants. Assessments should be collected and any payments be by check.

Keep in mind the following issues when paying any Officer, Director or Committee member:

1) Perception - members don't always understand the difference between Officers and Directors. Therefore, it may appear that the Board is paying themselves.

2) Accounting - payment should never be in the form of reduced assessments. The individual should pay assessments in full and the Association should write a check for work done based on an invoice. A CPA will show this.

3) IRS - A 1099-misc will need to be issued if they are paid $600 or more. If an employee, there are various taxes and withholding's that must be done. Additionally, waiving the assessments requires a 1099-C cancellation of debt (as the Association is a creditor and the contract creating the debt is the CC&Rs.

Note: The IRS can choose to make the determination for the Association if the individual is a contractor or employee.
See: Independent Contractor (Self-Employed) or Employee? from the IRS

4) Protections under the law - Being paid means you are considered a professional vs. a volunteer. This eliminates the protections one may have under the law.
See: VOLUNTEER PROTECTION ACT OF 1997 and We Don’t Need Insurance—Volunteer Protection Act of 1997


Note: This subject has been discussed in the past:

Subject: Compensation

Subject: President's HOA Dues waived?

Subject: Boards Paying Themselves

Subject: Officer compensation. Florida

Subject: Idea to increase volunteers for HOA officers
NpS
(Pennsylvania)

Posts:3921


10/26/2019 9:33 AM  
Thorough explanation by Tim.

Small addition:

Some HOAs don't allow compensation to Board Members or Officers. Mine is like this.

Some HOAs allow compensation to Officers but not Board Members. I've seen a few of these documents. None of them allowed an Officer to get compensated if they were also Board Members. Only an Officer who was not a Board Member could be compensated. Just wondering what others have in their docs.

Sikubali jukumu. Read all posts at your own risk.
JenniferD8
(Michigan)

Posts:30


10/26/2019 3:30 PM  
I appreciate everyone's comments and input on this discussion. A few comments triggered me to look into this a bit more.

Tim was correct -- compensation listed in the bylaws is typically only for officers. This is what our bylaws indicate. Currently, our officers AND directors are all receiving their monthly dues for free.

We have a buildings and grounds director of the board that works his tail off. According to the bylaws, he shouldn't be getting paid. Yikes!
JenniferD8
(Michigan)

Posts:30


10/26/2019 3:31 PM  
I forgot to add that we are self-managed.
TimB4
(Virginia)

Posts:16555


10/27/2019 7:02 AM  
Posted By JenniferD8 on 10/26/2019 3:30 PM

We have a buildings and grounds director of the board that works his tail off. According to the bylaws, he shouldn't be getting paid. Yikes!




OR, do you have an individual who was elected to serve as a director and appointed by the board to be the building and grounds officer?

It's highly possible that individuals who serve as board members don't even comprehend that they are likely serving two in two different positions (Director and Officer) with different responsibilities.

Directors, by majority vote, make the decisions for the Association.

Officers implement said decisions and handle the day to day tasks of running the corporation.

GenoS
(Florida)

Posts:3383


10/27/2019 1:14 PM  
Posted By NpS on 10/26/2019 9:33 AM
Thorough explanation by Tim.

Small addition:

Some HOAs don't allow compensation to Board Members or Officers. Mine is like this.

Some HOAs allow compensation to Officers but not Board Members. I've seen a few of these documents. None of them allowed an Officer to get compensated if they were also Board Members. Only an Officer who was not a Board Member could be compensated. Just wondering what others have in their docs.

My HOA's Bylaws are silent on the question of compensation for Directors, but seem to condone paying Officers. I'm not sure what to make of this section of the Bylaws. It seems to contradict itself:

"Article VI, Section 9
All officers of the Association shall serve without compensation except for
the payment of reasonable salaries for services rendered for the Association."
JeffT2
(Iowa)

Posts:503


10/27/2019 4:54 PM  
Posted By GenoS on 10/27/2019 1:14 PM
Posted By NpS on 10/26/2019 9:33 AM
Thorough explanation by Tim.

Small addition:

Some HOAs don't allow compensation to Board Members or Officers. Mine is like this.

Some HOAs allow compensation to Officers but not Board Members. I've seen a few of these documents. None of them allowed an Officer to get compensated if they were also Board Members. Only an Officer who was not a Board Member could be compensated. Just wondering what others have in their docs.

My HOA's Bylaws are silent on the question of compensation for Directors, but seem to condone paying Officers. I'm not sure what to make of this section of the Bylaws. It seems to contradict itself:

"Article VI, Section 9
All officers of the Association shall serve without compensation except for
the payment of reasonable salaries for services rendered for the Association."



It means you can't pay them to be officers, but you can pay them to cut the grass (or other service).

A person can potentially wear three hats: director, officer, and/or other worker (or contractor).

An HOA may be able to pay the Treasurer to keep the books, but not for being the Treasurer.

Lawyers seem to take delight in writing such short passages that need to be read very carefully to see what can and can't be paid.

NpS, what exactly do your docs say?

Jennifer, your buildings and grounds director may be entitled to be paid for non-director work. What is the wording?
JenniferD8
(Michigan)

Posts:30


10/27/2019 5:37 PM  
The wording in the bylaws state:

The Association Bylaws shall provide the designation, number, terms of office, qualifications, manner of election, duties, removal, and replacement of officers of the association and may contain any other provisions pertinent to officers of the association not inconsistent here with. Officers may be compensated but only upon the affirmative vote of more than 60% of all come owners and number and in value.
JohnC46
(South Carolina)

Posts:8911


10/27/2019 6:14 PM  
Posted By GenoS on 10/27/2019 1:14 PM
Posted By NpS on 10/26/2019 9:33 AM
Thorough explanation by Tim.

Small addition:

Some HOAs don't allow compensation to Board Members or Officers. Mine is like this.

Some HOAs allow compensation to Officers but not Board Members. I've seen a few of these documents. None of them allowed an Officer to get compensated if they were also Board Members. Only an Officer who was not a Board Member could be compensated. Just wondering what others have in their docs.

My HOA's Bylaws are silent on the question of compensation for Directors, but seem to condone paying Officers. I'm not sure what to make of this section of the Bylaws. It seems to contradict itself:

"Article VI, Section 9
All officers of the Association shall serve without compensation except for
the payment of reasonable salaries for services rendered for the Association."




Geno

My interpretation would be if an Officer was doing work such as cutting grass, painting the clubhouse, incurring expenses like printer ink, etc. they could be compensated. I would not interpret it as compensation for standard BOD stuff like meetings, etc.
GenoS
(Florida)

Posts:3383


10/27/2019 10:44 PM  
Posted By JohnC46 on 10/27/2019 6:14 PM
My interpretation would be if an Officer was doing work such as cutting grass, painting the clubhouse, incurring expenses like printer ink, etc. they could be compensated. I would not interpret it as compensation for standard BOD stuff like meetings, etc.

Makes sense. JeffT2 said something similar and I agree that's a reasonable interpretation. What's funny (only to me probably) is that all of the original developer-appointed directors and officers were from Iowa (as is JeffT2). The developer was a subsidiary of a publishing company in Dubuque (their FL real estate operation was like a hobby to them) and they appointed upper-level managers and directors from the parent company in Iowa to our board. I was wondering if that compensation clause would allow for reimbursement of their travel expenses to and from Florida back in the day. A lot of their bigwigs ended up buying retirement homes in the area albeit not in this subdivision.
NpS
(Pennsylvania)

Posts:3921


10/28/2019 12:37 AM  
Posted By JeffT2 on 10/27/2019 4:54 PM

NpS, what exactly do your docs say?


From my bylaws:

Directors shall serve without compensation but may be reimbursed for reasonable expenses incurred in the performance of their duties.

Officers shall serve without compensation but may be reimbursed for reasonable expenses incurred in the performance of their duties.


Sikubali jukumu. Read all posts at your own risk.
JenniferD8
(Michigan)

Posts:30


10/29/2019 1:20 AM  
I'm concluding that my association board definitely needs to consult with an attorney. The frustrating part is that the treasurer is adamant that everything is being handled properly. He said he'll double-check with the auditor, which I don't think will solve anything. The other board members also prefer to ignore any possible problem with compensation,since they've "been doing it this way for years". I hate to step down from the board, however, I'm now nervous that any co-owner could raise this same issue and sue the board.
JenniferD8
(Michigan)

Posts:30


11/07/2019 8:14 PM  
Small accomplishment! The auditor responded to the treasurer today. He told him that 1099s definitely needed to be issued to board members receiving compensation.
NpS
(Pennsylvania)

Posts:3921


11/07/2019 9:02 PM  
Big accomplishment! Congrats.

Sikubali jukumu. Read all posts at your own risk.
GenoS
(Florida)

Posts:3383


11/07/2019 10:05 PM  
Adding my congratulations, Jennifer. That's no small thing.
JenniferD8
(Michigan)

Posts:30


11/08/2019 9:55 AM  
Thanks everyone!
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