Quote:
Originally Posted by lenoxxx
They are holding us liable for past ‘losses’. A property with a reasonable value of around $400,000 could be OUR cess-pit again for $806,000! Thanks LCAP! I was quite astounded by the large amount of losses, i wondered how they could have gotten a loan on the property with that kind of negative cash flow, and then they showed us their books… the past 3 years worth, because they don’t keep any more than that. They were calculating ‘depreciation’ with their losses. So a year they take in roughly $13,000 positive cash flow, the house ‘lost’ $30,000 in value, so that year they lost $17,000 on the property.
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Please forgive me dropping into this forum, but I just had to respond to this. I am very sorry to hear about what is happening with this chapter and their house. Assuming the facts as presented are accurate (I am just saying that since I only know what I have seen here- I have no reason to not believe them), then this is far beyond bad brotherhood.
Let's say the house is worth $400,000 as you say. $30,000 a year in depreciation is pretty steep for two reasons.
First, land is not depreciable- and certainly not for tax purposes! (more on that in a moment.)
Second, even assuming the structure itself is worth 75% of the total value of the property including the land- that would still mean they are depreciating the house in 10 years time ($300K/$30K a year) and that is overly aggressive. 15-40 years is a more typical depreciation period for a structure.
What kind of organization is LCAP? How is it designated? Is it a non-profit entity? Do they have to prepare annual audited reports?
If so, then I would encourage you guys have a legal/accounting whiz or two do some serious digging. Because if the numbers they are presenting to you are what they are using to do their own internal accounting- then there are potentially issues based on the information I am seeing here.
Next- if LCAP is a non-profit entity, then what is its mission statement?
If the mission statement is, as I assume, to provide housing for members of the non-profit entity LXA- then by trying to force you to purchase the home in excess of fair market value they are violating their non-profit purpose and that is your best ammunition to hit them hard and force them to sell a new Housing Corporation the property at a fair price- which would be LCAP's initial investment LESS any net returns they have seen, and by that I mean tangible returns- none of this over-aggressive depreciation nonsense.
If we were talking about a public company, I would assume there is a lot here I do not know since this deal- as described on this site- is so far afield of what is appropriate. But when you get into the realm of non-profits and non-business management of entities like fraternities where politics can take over common sense very quickly, then this scenario is actually pretty believable even though a seasoned businessman cringes at the sight of it.
The stupid thing here is that if you do not raise the money they are demanding, LCAP has to sell the house on the open market for a lot less money and then LCAP risks costing LXA a chapter- or at the very least doing it serious damage. It becomes a lose-lose for everyone. The only reason I can imagine this is happening is that those balloon notes that were referenced have crippled the organization and they need to get extra money in some places to make up for capital losses or payment demands in other places (which is also legally tricky.)
Best of luck to you guys in this. What a mess!
PS- I almost forgot. It would be interesting to know what kind of loans LCAP was taking on. An organization in that kind of role is expected to invest very conservatively. If they were riding the rails in getting loans, that is potentially another actionable issue for which the Board- and not individual chapters- could be held personally financially responsible.