The homeowner association of a Fluvanna County gated community must pay $646,843 to the federal government if it wants to avoid litigation. So says the U.S. Department of Justice in a letter sent late last year to the Lake Monticello Owners’ Association.
The association, which oversees the 4,300-household, 12,000-resident lakeside community 15 miles southeast of Charlottesville, was notified in December of last year that as a 501(c)(4) "social welfare organization," it should have been ineligible for the Paycheck Protection Program, or PPP, loan it requested and received at the onset of the COVID-19 pandemic.
It will be months before the financial damage is fully assessed. The homeowner association may be forced to trim spending as well as pay penalties and interest on a loan its leaders thought it qualified for.
“This will be a blow to our association, absolutely,” Lake Monticello Owners’ Association spokeswoman Marieke Henry told The Daily Progress.
The homeowner association applied for the PPP loan in the early days of the pandemic to avoid furloughing staff and keep its operations running, she said. The loan application was submitted in April 2020 and was approved a few weeks later. The U.S. Small Business Administration, which administered the program, granted forgiveness May 20, 2021.
Henry said that although the loan application listed who qualifies, it also offered the option to check “Other.” That’s what the Lake Monticello Owners’ Association did. It even provided a description of what kind of an organization it is.
“It all went very quickly, and it was very unclear who qualified,” said Henry, who at the time was not the association’s spokeswoman. “[The association] made the assumption, ‘If we don’t, we won’t be approved; we’re safe.’ And that was not the case.”
In a statement to members, Lake Monticello Owners’ Association Board President Larry Henson said, “Initial guidelines [for the PPP loan] were unclear and were revised multiple times. LMOA assumed eligibility based on the application’s wording, trusting that results would be denied if incorrect.”
Lake Monticello Owners’ Association members pay $1,459 in annual dues; members whose lots are vacant pay slightly less.
But dues alone do not cover all of the association’s expenses.
In order to pay staff salaries, the association also generates income from various amenities, including a swimming pool, the Bunker Bistro restaurant and the Lake Monticello Golf Course.
When the pandemic hit, Henry said, the Lake Monticello Owners’ Association didn’t know what impact it would have on membership and whether members would be able to pay their dues at all.
“The assumption was made that maybe those dues won’t even come in, and then how do we cover paying for our staff and all of the expenses that go with running a large HOA?” she said.
In 2020, the association had roughly 75 employees.
“We’re very surprised that it happened, because I think everyone involved was absolutely confident that they were fulfilling their fiduciary duties to the community — which was to protect the home values and their members," Henry said.
She added, “No one was trying to break the law or be sneaky or anything like that.”
In 2022, the Small Business Administration’s Office of the Inspector General released a report that found 179 PPP loans totaling $684 million were made to "potentially ineligible nonprofits."
In 2023, a homeowner association in California — also a 501(c)(4) — reached an agreement with the DOJ to pay more than $2 million, including nearly $500,000 in fees and penalties, after it was found to be ineligible for a PPP loan it previously received.
The PPP loan program was established in March 2020 under the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, to provide economic relief to businesses and help them retain their workers. According to the Pandemic Response Accountability Committee, which tracks COVID relief money, "borrowers qualify for loan forgiveness if they use at least 60% of the funds for payroll costs between 8 and 24 weeks after the loan disbursement date." As of October of last year, the program had loaned nearly $800 billion to 11.5 million small businesses.
The Lake Monticello Owners’ Association has obtained an attorney to advise it on further steps, Henry said.
Moving forward, however, the association will likely have to adjust its spending “in order to make this right — if we are forced to make this right," she said.
The association did not respond to the December DOJ letter, but its board of directors is scheduled to meet at 7 p.m. Thursday to prepare a statement.
Source: www.dailyprogress.com