HOA taking out a loan against our property?

How would taking out a loan (lien against all owners property) help solve the problem of a reserve that was depleted by a negligent board? The loan will come with interest....... someday it all comes due and I don't have faith in the "volunteer" HOA Board (most board members act as if they are doing the community a favor and expect preferential treatment)to make sure a large loan is paid back.... not even sure how they propose to pay it back. I'm assuming as a property owner the board cannot take out a loan without all owners permission. Am i correct? What would be the advantage of a communal loan with no plan to pay it back (and with interest)?
Thanks to anyone with info to share.

I'm betting that the board faced two options.

1) A special assessment

2) A loan.

I expect that the plan to pay it back is in the form of higher assessments or, worse, multiple special assessments.

Most HOA declarations prohibit the board from borrowing money.

I don't think that this is correct.

All of the governing documents I've seen give the board broad powers including selling common area or borrowing money. Mind you, this was HOA documents not COA documents.

What the board told the bank and what the board led the membership to understand can be two different things

I agree with TimB4. Also see the link MaxB4 provided, especially since the OP indicates she is in California.

Hi Jennifer,

The odds are great that your CC&Rs don't allow your HOA board to obtain loans where a lien is filed on the common property aka "against all owners." Instead, the loan will be backed or justified through the HOA cash flow aka "non-collateralized or unsecured loand", which will carry a higher interest and skirt the prohibition.

Now, to your question.....

The loan will allow your community to conduct the capital project that your HOA Reserve Funds don't possess the cash to cover. So, the community will see the improvement in the physical sense. That's how the loan will "help."

The loan will also introduce a new monthly expense in your operations budget that must be accounted. So, a "broke" HOA won't have enough operations budget to cover monthly bills and routine maintenance AND a loan payment. So, the loan payment will be paid by further reducing the monthly contribution to the already suffering Reserve Fund.

Summary: Your project gets completed and whatever money is currently saved for Reserves will be re-directed to payments, further reducing your savings capacity. Your dues are MUCH too low and your HOA cannot have another capital project as long as you're under this loan debt. You have a negative reserve fund that must fill the "hole" caused by loan debt, then grow to a level to fund the next capital project without needing to refinance the current loan or getting a new loan.

When I was first elected my HOA board president, this is exact scenario is what I inherited. In fact, at that time, we fell so far as refinance the existing loan due to an unexpected capital project arising in Year 3 of our 7-year loan term. We escaped eventually.

NOTE: I may have invented the

A 15-year assessment sounds uncomfortable. In 20 years, rinse and repeat.

A loan is when you have a known expense. Just to refill the reserve money for not fit that bill. Best to raise the dues to get back the lost money over time. No interest.

Easy. You get an estimate for the roof expense. You then get a loan for the expense maybe minus what is left in reserves.

I am pointing out you just do not grab an amount out of thin air. Have to have hard numbers. Losing the money out of reserves because bad bookkeeping is not how you get a loan for.

The op stated that they wanted to take out a loan because previous bord depleted it. My point is do not get a loan for that reason. You raise dues or a special assessment. You get a loan for when project is necessary. A reserve account can sit around for years without use until one day the roof falls in.

Look, when we took out the $900,000 loan it was to replace a reserve component that should have lasted 20-25 years but only lasted 8 due to construction defects. We essentially had to borrow as we didn't even have enough in reserves at that time to to replace the cooling towers.

The loan was to "make-up" for the lack of sufficient reserves funding and the amount we requested was a real estimate from contractors.

There was no lien on individual condos. The total assessments due each month were collateral for the loan.

I know of no bank that would give out a loan to replenish the reserves, NONE!

This is also my understanding.

Local banks will most certainly issue loans using creative approaches and their local dollars as such loans are serviced locally. I don't think corporate banks would touch it with a ten-foot pole and wouldn't waste my time chasing the Big Boys. This is where you hope the HOA has "shopped local" on their banking needs.