COLUMN: Barbara Holland

Q. I have several questions:

1. About two months after election of our board of directors, two directors resigned after selling their homes. The board did not inform the homeowners, but chose replacements. Is it legal to replace directors without notifying the homeowners?

2. The board established a fund-raising committee. I realize that all funds brought into the association from outside activities such as fund raisers are taxable and could certainly change our tax status and put us in a higher tax bracket, which before the fund-raising activity was only interest income.

When the board notified the homeowners of a garage sale, they asked all owners to donate a portion of their sales back to the association. A member of the fund-raising committee stated that fund-raising projects fall under NRS 82, the state law for nonprofit organizations, instead of NRS 81, which is the law under which we were incorporated.

Should the board notify all owners in writing about the tax liability that can incur because of these fund raisers?

3. Is it legal for board members to be on the fund-raising committee? I would think that this constitutes a conflict of interest.

4. In the process of notifying the owners through a flyer about a garage sale and pizza sale, they failed to notify all owners and only selected a few to participate. Isn't this a violation of some sort?

5. We believe that the financial reports being generated and distributed to the owners are not correct. They show negative figures in the expense accounts and we operate on a cash basis. We brought this matter to the attention of the board, which has yet to correct the reports. The accountant for the association will not discuss the matter with nonboard members. What can we do?

A. I will answer in order:

1. There are two issues: the written procedures of your governing documents, and then an ethical issue.

Many governing documents allow the board the authority to appoint directors without calling for an election when there is a vacated seat. Other governing documents require the homeowners to vote.

Boards should inform members of open seats before making appointments. Is it against the law for a board not to do so? No, but you may review the governing documents to ensure they followed proper procedure.

2. Just because an association was created as a nonprofit corporation in the state of Nevada under NRS 81, does not make the association a nonprofit organization under the federal tax laws. Your board should contact its accountant to determine how much money can be raised in relation to your tax liability.

If your association has high operating expenses or if the funds are to be used for maintenance or other improvements, these expenses may offset the tax liability. In creating this committee, the board may have already investigated these issues.

3. It is not illegal for board members to be on the committee, nor is it a conflict of interest as long as the funds are deposited into the association's account. It is, however, good to have other owners on the committee.

4. You will have to discuss this with the board. It could have been a genuine mistake. If the purpose is to raise as much money as possible, then it does not make much sense not to notify all owners.

5. You can contact the ombudsman's office for assistance. They will need copies of the reports and you will need to show why you think the reports contain errors. They can investigate the issue and maybe reach a dialogue with the board and accountant.

Questions for Barbara Holland may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759.

Barbara Holland, Certified Property Manager, is president and co-owner of H&L Realty and Management Co. She is a member of the Institute of Real Estate Management and is the author of two books on the subject. Holland is a past president of the Greater Las Vegas Association of Realtors.

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