Q: The clubhouse and pool in our homeowners association are outdated and need to be modernized to keep up with neighboring amenities and maintain home values. We do not have enough money to pay for the upgrades and a lump sum special assessment is not an option. What can we do? -J.B., Port St. Lucie
A: In these situations, financing the upgrades may be your association’s best option. There are many banks that are eager to lend money to community associations due to the fact that the default rate is very low. You would first need to determine whether your association’s governing documents require the Board to get the approval of the membership before borrowing money and providing a bank with a security interest for the loan (note that the security interest in loans to associations is typically an assignment of the right for the bank to collect any special assessments due in connection with the loan, and sometimes also includes an assignment of the right for the bank to collect regular assessments as well). If your association’s governing documents do not require membership approval, the Board can contact various banks for loan terms and options and facilitate the loan on its own; however, if your association’s governing documents do require membership approval, the Board would need to call a membership meeting and obtain the approval threshold of the membership as required by the governing documents.
Another important issue is repayment options. If the repayment amounts are low enough, the Board may consider adding the loan repayment as a line item in its regular budget and simply collect through the monthly assessments (or quarterly if your community collects assessments quarterly) and pay back the loan from the general operating account. That being said, if the payments are relatively low, it is likely because the repayment term is lengthy, and you may find that some of your members will not want to pay interest. Therefore, the Board should consider an accelerated repayment method which generally involves a special assessment with multiple options.
For those owners who have the financial means to pay the entire special assessment at once, those owners may pay up front. For those owners who prefer to pay the special assessment over time, those owners may choose that option. Obviously, it is important to know how many owners would consider paying in lump sum, because that would decrease the amounts needed to be borrowed which will have a direct effect on the terms the banks can offer your association. Finally, please note that Florida law provides that the Board may elect to charge the interest and financing expenses against only those owners who elect to pay over time; meaning that the Board can offer incentive to those owners who elect to pay the entire assessment in a lump sum.
Avi S. Tryson, Esq., is Partner of the Law Firm Goede, Adamczyk, DeBoest & Cross. To ask Mr. Tryson questions about your issues for future columns, send your inquiry to: firstname.lastname@example.org. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.