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February 23, 2008
The Very Rock-bottom Basics of Community Associations
I get a lot of questions from people who find my web site, and I spend some time on HOATalk - a discussion board geared to board members. I am constantly amazed at some of the questions, given the fact that most of the writers have had numerous boards before they were elected, and why the question couldn't answered, or was answered wrongly, is sometimes leaves me staring at the screen, wondering what I've been working so hard at for the past 33 years. So let me outline some basics about community associations. These will apply to most, so assume they apply to yours until you can definitely determine otherwise:
You are a corporation - subject to your state's corporate laws. This is where you get your board structure.
You are not tax-exempt - you are probably "not-for-profit", but you're not a charity. You may fit into a couple of different tax categories - which one you should be in is up to you and a qualified CPA.
You have to file a tax return every year - that doesn't mean you will owe taxes, but you have to file. Yes - state too.
You have to renew your corporate status every year - if you missed a year, you may have lost the protection of corporate law.
It doesn't matter who does your books, someone else should be checking them and the bank accounts.
It doesn't matter how large you are or how small you are - if there are common areas involved in your association - you need to have reserves.
You are not required to have professional management, legal counsel or a CPA - but you'll be an idiot if you don't periodically call on them for help when you run into a problem. The good ones have "been there and done that", and won't waste your money.
You need to have insurance, and more importantly, you need someone on your side (not necessarily the agent you are working with) to tell what's really insured and what's not. Insurance surprises over the past few years have been very expensive for associations.
If you can't read your documents from front to back without falling asleep, or if you have to continually go back to try and figure out what they're saying - you're long past time having legal counsel come in and help you clean them up. Bad documents never make for good associations.
It's not your job to keep the assessments low - it's your job to spend the money wisely.
Most of the problems that end up in court between an owner and the board boil down to stubborness on both parties part. Don't let it get to that and you'll save everyone a lot of money and aggravation.
[Special note to association's in drought areas - if you're on water rationing, don't send owners violation notices for not having a green lawn - I don't care what your documents say - you look like idiots.]
More later-----
Posted by joewest at February 23, 2008 8:16 PM
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