Can An HOA Profit From Foreclosures And Fines? | HOAManagement.com

Abstract

HOAs are generally regarded as nonprofit corporations, but can an HOA profit from foreclosures and fines? What are the legal implications of keeping surplus funds? HOA Profit: Is It Legal? In the eyes of the law, homeowners associations are considered nonprofit corporations. 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. 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. The Case of Green Valley Ranch One real-life example hails from a Colorado HOA. According to CBS4, the Green Valley Ranch HOA has managed to accumulate more than $2 million in total assets, with more than $1 million in checking accounts. Foreclosures have become a profit-earning machine for the Colorado HOA. In fact, between 2021 and 2022, the HOA filed foreclosures on almost 60 homes - and 2022 is only halfway through. What to Do With Surplus Funds If homeowners associations are not made to earn a profit, what should they do when they encounter surplus funds? Ideally, as nonprofit corporations, an HOA's budget would zero out at the end of the year. Tax Implications of HOA Excess Funds Homeowners associations are required to pay federal taxes and file tax returns, just like any other corporation.