Lies, Loans and Liabilities

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.


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Ward Lucas is a longtime investigative journalist and television news anchor. He has won more than 70 national and regional awards for Excellence in Journalism, Creative Writing and community involvement. His new book, "Neighbors At War: the Creepy Case Against Your Homeowners Association," is now available for purchase. In it, he discusses the American homeowners association movement, from its racist origins, to its transformation into a lucrative money machine for the nation's legal industry. From scams to outright violence to foreclosures and neighborhood collapses across the country, the reader will find this book enormously compelling and a necessary read for every homeowner. Knowledge is self-defense. No homeowner contemplating life in an HOA should neglect reading this book. No HOA board officer should overlook this examination of the pitfalls in HOA management. And no lawyer representing either side in an HOA dispute should gloss over what homeowners are saying or believing about the lawsuit industry.

9 thoughts on “Lies, Loans and Liabilities

  1. Nila Ridings

    Well, well, well. Quivira Falls has done it again!

    Our board borrowed $1,000,000. and gave the CAI property manager the first $100K of it. When they couldn’t make the payments the CAI manager arranged for them to pay interest only so down the drain went another $60K.

    The covenants and by-laws didn’t mention anything about the homeowners having a say in the loan. But now, I’ve learned the Articles of Incorporation say to take a loan the HOA must have the signatures of 2/3 of the members.

    Are there any class action attorneys out there? I have a case for you!

    Oh! The webs they weave in Quivira Falls!

  2. Nila Ridings

    There are resource pages on this website. See the tab above.

    I’m not sure if there has ever been a case in the media where a loan was made to the HOA without the approval of the members when the Articles of Incorporation state it takes (in my HOA case) 2/3 of the members signatures. I have not read about one, yet. I’m sure if it exists somebody will find it.

    My HOA (Quivira Falls) likes to be the leader in these issues. In one lawsuit the judge said it was the first HOA in the United States that has been found guilty of violating a consumer protection law. It’s the first one I’ve heard of that has $10M unaccounted for. And because of the board’s behavior it was the HOA in Kansas that precipitated the reason for contacting the legislators and working to pass the Kansas Uniform Common Interest Owners Bill of Rights Act.

    Yes, Quivira Falls likes to be first for all the wrong reasons. The end result: deeply depreciated property values and neighbors at war in an ongoing battle for years. We might also be the HOA with the most lawsuits on the county records as well.

    I see the biggest reason for all of these problems is ignorance about HOAs and business management as well as blind faith and trust in board members. I hope others will learn from the mistakes of Quivira Falls.

  3. Nila Ridings

    I just learned that a class action suit is not necessary if the state allows for derivative lawsuits. And individual home owners can file on their own if they prefer. All board members that were on the board at the time the loan was taken can and should be sued individually.

    Documents needed are: the loan application, the attorney’s letter giving his opinion on the taking/making of the loan, closing documents, and details of how the money was spent.


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