HOA PROFIT: IS IT LEGAL? In the eyes of the law, homeowners associations are considered nonprofit corporations. These associations’ primary function is to preserve the curb appeal and property values in the communities they handle. In the pursuit of this, HOAs will naturally require revenue to fund the various expenses associated with maintaining the community.
However, there are some HOAs that treat their associations as some sort of business. It is not an HOA’s purpose to earn a profit, so a board’s decisions should not be geared towards that. And while there are a few associations that aim to inflate their HOA’s bank accounts, there are others that only hoard money in fear of and preparation for a possible budget deficit.
This is a slippery slope, though. Sometimes, in an association’s effort to secure adequate funding, there is an opportunity to abuse it. Ill-intentioned board members might push for an HOA to turn a profit, often at the expense of the homeowners living in the community. An association may start imposing exorbitant fines and fees, all while claiming it to be for the good of the association and its members.
When an association encounters surplus funds, the natural reaction is to keep them for future use. However, not all states allow this. For instance, Colorado law requires associations to either return the surplus to members or use it to offset future fees, unless otherwise indicated in their declaration.
CAN AN HOA PROFIT FROM FINES AND FORECLOSURES?
It is not uncommon for homeowners associations to impose fines on violations and pursue foreclosure sales for delinquent accounts. In fact, these are two common methods of enforcement that many HOAs use.
Unfortunately, some associations will abuse the authority granted to them by state laws and their governing documents. Given the earning potential of fines and foreclosures, HOAs may feel tempted to exploit the system.