Wednesday, October 26, 2022

The Selling of a Country Club Part 5

This is the fifth is a series on the Selling of a Country Club.  It documents how errors by an HOA Board can diminish its credibility and impose costs on its members. 

There is no doubt serving on an HOA Board is a difficult job.  Board members can become defensive when they believe, often with good reason, they are being criticized unjustly.  In some cases, Board members realize it is easier to manage without transparency.  If members do not know what to complain about, criticism will be is diminished. An example of this is how the issue of the property tax exemption for the Club was handled.  As detailed below, the Board’s actions can only be explained by its hubris.

The Master Association Board published a sales brochure, Better Together, that asserted if the HOA bought the Club, the Club would be exempt from $241,000 in yearly property taxes.  As a former adjunct professor of State and Local Government at UCLA, this struck me as too good to be true and probably false.  To validate the tax-exempt assumption, the President of the Master Association was asked if the assertion of the exemption had been corroborated by the Assessor or by the tax treatment of similarly situated HOA owned clubs.  In an email dated 4/25/2021 the President responded:

·       Yes, both were done. We also checked with the HOA owned courses that were part of DRM (Desert Resort Management) as the management company. There were 2 DRM managed HOA’s that owned clubs, and both are tax free…[1]

The President was then asked (email dated 5/7/2021) if the Board had any documentation from the Assessor affirming the exemption from property tax.   No response was received.  My inference was the Assessor did not give the Board any assurance about a possible exemption.


 Second, the Riverside County Assessor (email dated 4/28/2021) was asked the following question:

·       If a privately owned golf course is bought by an HOA, does the property tax disappear or is it allocated to homeowners? 

The following answer was provided by the Supervising Appraiser, Total Property & Exemptions in the Office of the County Assessor-County Clerk-Recorder (email dated 5/3/2021):

In response to your general question…, the property tax does not disappear, the property is still taxable to the HOA.

There was also empirical evidence the Club would not be exempt from the property tax. The Springs Golf Club sold itself to the Springs HOA in 2019 under terms similar to the purchase of the Club.  Examination of the history of paid taxes revealed the Springs HOA now pays the taxes that were previously paid by the Springs Golf Club—i.e., the property taxes did not go to zero.

When confronted with the Springs example, the General Manager of the Master Association argued (email dated June 10, 2022) the Springs example was not relevant and continued to vouch for the Board’s claim that Club would become tax exempt:

 The statements contained within the Better Together brochure are accurate, and no one was misled.[2] Further the statements contained in this brochure were confirmed by two separate legal firms, CPA firms as well as by employees of the County Assessor and Tax Collector prior to distribution as it (sic) not the association’s practice nor habit to distribute misleading information to the membership. 


When the General Manager was asked to produce any statement from the Assessor about being tax exempt, she refused writing (email dated June 13, 2022): 

You are welcome to “doubt” any statements; this does not place the association in a position of having to provide you documentation to “end the issue.”


It is doubtful any documentation exists.  


So where does the property tax stand?  The Riverside County Tax Collector issued a 2021 tax bill for the Club property.   The first and second installments went unpaid and late fees of 10 percent were added.  After July 1, 2022, interest on the outstanding balance was also added.  As an example, parcel 60211003 (i.e., most of the Clubhouse property) had an initial property tax of $10,844.02.  On August 31, 2022, the property tax bill had risen to $12,328.17 and was paid by the Master Association.[3] The late fees and interest accounted to a 13.7 percent in the property tax bill.  Assuming the total property tax bill for the Club was $245,000, the delay in resulted in penalties of $33,655.

The way the property tax issue was handled illustrates the governance problems at the Club.  When questions about the exemption arose, Board members should have been more aggressive in seeking the truth. Instead, they let the General Manager continue the charade in an effort to bluff and bully their way through the predicament.  The evidence is clear the Board erred in both not alerting the members about the property tax and not paying the tax on time.  

[1] DRM’s experience may be with clubs that were always owned by the HOA.  In that event, the value of the common property would have been embedded in the price of housing and the HOA would not be subject to property tax.  This scenario was affirmed by the appraiser cited in the email dated 5/3/2021.  That would not be the case at the Club, however, since the Club was being purchased after the sales of homes.

[2] The Better Together brochure was misleading primarily by omitting key facts.  Missing was 1) any mention of the $300,000 the HOA would lose with the departure of the previous owner, 2) any mention of capital replacement costs for the golf courses, 3) the loss of cart parking at the Cantina, and 4) the loss of golf dues from 68 Premier members.   

[3] The Tax Collector wrote (email dated 10/12/2022) “The Master Association paid the prior year 2021/2022 taxes on 8/31/2022.”  Previously, the Master Association’s Treasurer was asked (email dated 9/21/2022) if the Master Association did in fact pay the 2021 property tax bill.  The Treasurer did not answer. 

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