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Safeguarding HOA/Condominium Association Money: Investment considerations and pitfalls.

Adam Marshall

We are often asked by our association clients whether they should invest assessment or reserve funds into the stock market, bonds, money market accounts, CDs, etc.  Let me start by stating that I am neither a financial planner nor an accountant, so my take on investment of association funds will center on the Board’s duties to the association and the underlying principal of why associations collect assessments in the first place.

First, in North Carolina homeowner and condominium associations are non-profit corporations. They are set up for specific purposes as outlined in the governing documents, which may include maintenance of roads, street lights, exteriors of owner property, and maintenance of community common area, to name a few.  The association really is not set up to make money, but is created in part to pay for expenses as they come due.  Therefore, it is extremely important to 1) have association funds when needed and 2) be able to freely access those funds as expenses arise.  Maintenance needs are ongoing, emergencies present themselves, and other continuing financial obligations are always present for our communities.  It is imperative that associations have money available.

With the above principal in mind, my guess is that most community association attorneys would tell their clients to take a conservative approach to safeguarding association funds.  Meaning, investing in the stock market, which as we all know fluctuates greatly, may not be the wise choice.  There is a great risk that the money invested may not be there, or may be less, when a pressing need arises.  Typically investing where there is no real risk of loss is preferred even if the return on investment is minimal.  I recently heard a phrase that has stuck with me which is that associations should be more concerned with the return of their money than the return on their money. 

Second, Board members have a duty to act in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the he best interest of the corporation.   Meaning, Board members have a fiduciary duty to the association.  Board members must remember these principals when discussing the safekeeping of their owners’ money.  Board members should remember the purpose for which associations were created, and if they do, they will likely see that having funds available when they are needed will likely outweigh the benefits of the gains that may come from risker investment options.

Our association attorneys at Law Firm Carolinas are happy to discuss your association’s financial goals.  However, we encourage anyone wrestling with some of these decisions to contact a financial planner and/or accountant to determine the best way to safeguard the association’s coffers.

Author: Adam Marshall
Articles have been Reprinted with permission from Black, Slaughter, Black.

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