Each year your condo association or HOA is required to pass an annual budget that in theory should pay all of the bills of the association. The statutes require this. Then a storm hits, or balconies start deteriorating and many Associations suddenly find themselves in desperate need to repair the common areas with no reserve funding to rely on. Boards now are faced with a difficult choice. Do we special assess everyone, or do we borrow money from bank. Often times, rather than pass a huge special assessment and force everyone to instantly dig deep into their pockets, many associations turn to banks for a loan. The question is…is there anything in the condominium or HOA statutes that would prohibit this. In simple terms, the answer is no. In fact, borrowing money is expressly authorized in the Florida not-for-profit corporation statute. So, unless there is a specific restriction in your governing documents that prohibits the Board from borrowing money, there really are no restrictions.
When borrowing money from a bank, the association will be required in the loan documents to pass a special assessment in an amount sufficient to fund the repayment of the loan, or promise to include the debt payments in the annual budget. Several years ago, The Director of the Division of Florida Land Sales, Condominiums and Mobile Homes issued a Declaratory Statement that allows Condominium Associations to permit owners the option of paying the special assessment in full without interest or paying the assessment with interest over time. The decision does not say the association must offer the option, only that it may offer the option.
The association will be required to sign lots of documents, including a Collateral Assignment of the right to collect assessments. This simply means that if the association doesn’t pay back the bank – the bank has the right to collect the monthly or quarterly assessments directly from the owners. In a condominium, one thing the association will not have to sign however is a mortgage. That’s because the association does not own any property that can be mortgaged. Remember, all of the owners own the common areas, not the association.
Some board members believe borrowing money is a bad idea because loans are generally repaid over a longer period of time than it would take to collect a special assessment. The loan repayment is seen as a drag on the long term financial resources of the association. Others see the ability to borrow as a god send, making repairs to the property possible because most members cannot afford an immediate expensive special assessment.
Has your association borrowed money from a bank? Was it a good idea, or did it turn out to be a long-term drain on the resources of the community?