Mattu's Tax Loss Picks

[WTMHouston]

One concept flaw and a couple of potential problems with your idea(s).

First, don't be too sure that the HOA will have a surplus; not many do. In most HOA's, any "extra" money is placed into the long term capital account. This usually prevents those nasty special assessments years down the road. Plus, it is prudent to plan for the future. Thus, just because current year expenses were only $500K does not mean that there is a $100K surplus. That $100K is probably (at least it should be) being put up for future significant capital expenses for replacement of major items in the community.

Second, if the HOA were to do as you propose, it may constitute a form of insurance and may require the HOA to be licensed by the State. This is an expensive process and not one they would likely pursue.

Third, this would create potential liability for faulty repairs that few HOAs would be willing to assume. Although insurance for this is probably available, I would be surprised to find many HOAs willing to also incur that additional expense.

Fourth, the most fundamental problem with the idea is that expenses would not be for everyone's benefit but only for those whose appliances broke down. Most HOA's are limited by their corporate charter and-or by law to expending money for the benefit of the entire community. Repairing appliances in someone's house would not come even close to qualifying. It would be a lawsuit waiting to happen.

The idea of an HOA arranging for preferred service and pricing for community members is a good idea, but I do not think that the HOA could legally fund either a single fee expense for reduced pricing or individual payment when repairs are performed.

It is my understanding that the current home warranty companies select their contractors because the contractors are willing to accept smaller payments for a continuing source of business. There is no reason that an HOA could not do the same thing -- negotiate for reduced pricing based on the projected volume. Of course, unlike the home warranty company, the HOA cannot guarantee that those who need the services will use the selected vendors.


Troy