guest blog by Dave Russell
Lies, Loans and Liabilities
So, your HOA has overspent, misappropriated funds or has simply “run out of money.” Now what? Well the answer here is simple, “let’s take out a loan!” That’s right, if your overinflated mandatory dues weren’t enough, your HOA is going to put you, the homeowner, on the hook for tens of thousands, if not millions of dollars for a loan.
Hypothetically, let’s say your HOA borrows a million bucks, you know, to “pay the bills.” What the homeowner may not realize is that the HOA Manager and/or the Management Company may possibly be receiving a minimum 10% “finder’s fee” for assisting the HOA in acquiring the loan. That’s right, a legalized kickback of over 100K for simply doing, well, nothing.
Call it what you want, a line of credit, or an extended line of credit, but it is still considered a LOAN. Is this really legal? Can your HOA board just simply borrow this money on behalf of its membership? The answer here is Yes and No. Yes, if your association doesn’t have any restrictions about “Loans” in their governing documents. No if there are restrictions regarding “Loans” in the governing documents.
Many associations do have provisions regarding loans however, those provisions are usually buried in a lengthy set of governing documents, that homeowners don’t read, or no longer have in their possession. In some cases, the governing documents require 2/3 of their membership approval before the HOA acquires a loan on their behalf. In some cases, your association may require the signatures of 2/3 of its membership before they sign those loan papers.
It happens often, loans being taken out without the required approval or signatures of the HOA membership. Maybe, I should have billed this story as, Fraud and Finders Fees vs. Lies, Loans and Liabilities.
I’ve seen this little scenario play out time and time again, and it’s wrong, simply wrong I tell you!
If your association is thinking about, or has acquired a loan, make sure it was, or is, being done legally. As the homeowner, you need to read through every governing document including, the CC&R’s, Bylaws, Rules and Regulations, and most importantly, the Articles of Incorporation, which are rarely ever read. Before your HOA makes you, the homeowner, liable for that loan, make sure they have done it legally and legitimately.