HOA ownership

[Monica Barnard]

Profit Sharing Plan holds real estate. Trustee wants to subdivide and sell lots. Jurisdiction requires that a Home Owner's Association be set up before the real estate can be subdivided. Interests in the HOA will be conveyed to each buyer. Trustee's real estate attorney asks if the Plan can own interest in the HOA? At some point the Plan would no longer have any ownership interest, even possibly before all of the lots are sold. The plan document, of course, does not address this specific issue, and I've not found any prohibited transaction addressing HOAs. Where should I look?

Thanks in advance!

[hr for me]

Is the trustee in the land development business?

I think the only way the plan could do so is if they holdback specific parcels that the plan still owns (hoping that value increases even more with the development). They would have a share in the HOA at that point as a property/lot owner (I am on an HOA board for our 'hood and honestly there is no way in the hot dark place that I would think this was a good idea!) HOA's (at least in our state) want to be non-profits so there is not a growing investment that gets a good return if you don't own any of the RE anymore, but rather payouts from the lot owners back to the common fund for capital improvements/expenses/upgrades/etc. And even then, as with all real estate, you hope what you held on to will be worth something/more after the rest is built out. You'd probably be better off selling the whole piece to a developer who knows the legalities of setting up a neighborhood/HOA/development/subdivision. Yes, you will get less per acre but do you really want the PS plan on the hook for the liabilities of property development (which can be large)? Again, I wouldn't!

I truly doubt you are going to find an attorney that is well versed in both RE/HOA laws AND Profit Sharing regulations. I'd be researching HOA laws very tightly to see if there is any real payoff later.

[QDROphile]

Why is the plan trustee's lawyer asking you a legal question about plan assets? Are you a lawyer for the plan or plan sponsor? The trust instrument controls, but if the Trustee has authority to manage plan assets, the trustee should be responsible for carrying out the transactions proposed by the trustee and complying with applicable law in the process. That includes hiring the expertise necessary for the transactions and compliance with ERISA.