Loans from board members

Deanne,

I don't know that it would be illegal for a board member to loan $$$ to the assn. It should be spelled out in your gov. docs. whether or not the assn can obtain a loan. My CCR's state: "Borrowing Power. The assn may borrow money in such amounts, at such rates, upon such terms, and security, and for such period of time as is necessary or appropriate." This would be a board decision with no vote of the members required.

I would REALLY be concerned if the board had loaned him the moeny - but for him to loan the HOA money - H-m-m-m. (only because I have heard of this before) Not sure if this would be a conflict of interest if:

Was this for an emergency?
Did the HOA seek other loans and compare rates?
(12% seems high)
Legal contracts were written.
The membership approved this (or any other) loan that would eventually entail an assessment raise.

the loan was to cover a short fall of an assessement for a new roof.

Homeowners were not advised. The person making the loan owns 5 units, which I believe is a conflict, she also serves as president of the association. All of this information has been kept from the homeowners'

Deanne,

The fact that this board member loaned $$$ to the assn instead of the assn lending him/her $$$, puts a totally different slant on things. A conflict of interest occurs when a board member has a monetary interest in a board transaction. The fact that this board member is being paid interest on the loan can be construed as a moentary interest, but, IMO it really isn't the type of monetary interest that is meant by conflict of interest.

Perhaps the assn was unable to obtain a bank loan, or at least not one with an interest rate lower than 12%. The fact that this board member was willing to loan the assn money should be appreciated as it enabled the assn to complete the roofing project. The fact that the h/o's were not informed of this loan, nor asked to vote on it may not be a requirement -- what do your gov. docs. say about this? Now the loan must be repaid which may result in a special assessment. So what? Wouldn't a special assessment have been needed to obtain this $$$ to complete the roofing project?

Dwight, what appers reasonable to you does not necessarily make it right.
If Pres. turned lender owns 5 units in this condo assoc. then she's most likely an investor and rents the units she does not occupy. She does have a big monetary interest in this association. Therefore, IMO, the membership should have been notified of :

1) the shortfall
2) the board's intent to borrow from Pres. and terms of loan
3) or as an alternative, the need for an additional assessment

You propbably are not aware of many "transactions" that the board does.

May be time to get on the board or at least a committee so you have more opportunity to watch what the board is doing.

But, as you read, most posters here don't see this act as "illegal."

it is the lack of communication. if we had been asked to pay an additonal $200-300 this would have covered the deficite and we would not be paying pres back at $1000 per month & depleting reserve fund in order to pay her back.

Deanne - so it's not the legality of the loan that you question as you originally stated but instead the perceived lack of communication from the Board? Again, did the Board really fail to communicate or did the members fail to pay attention (or something in between)? I'm sure most Boards have had experiences where actions are noted in the minutes and notices are sent out, yet still the members come back with "I didn't know about that."

I have a hard time understanding how you went from paying an additional $200-$300 to paying $1000/month plus depleting your reserve fund, or how the "lack of communication" plays into that difference. A 12% interest rate, while it might be a bit high, sure doesn't create that kind of difference.

Deanne,

IMO, lack of communication by the BOD is one of the major things that causes discord in an assn. However, the state of AZ requires that all meetings of the assn, including all board meetings be noticed so the members have an opportunity to attend and even have the right to speak b/4 an issue is voted on. This, in effect, puts some of the onus on the member -- if they're really concerned to know what's going on they have the right to attend the board meetings. I'm not putting the all the blame on the members, just stating they have a right to attend meetings to learn what is going on. IMO, the board should send a monthly or quarterly newsletter to keep the members informed of certain issues. Some assn docs may require the board make a report to the members of the "corporate affairs", usually at the annual meeting. I know of no state law which requires the board to communicate their actions to the members.

Regarding the board meetings, state law requires a 48-hr notice be posted by ". . .newsletter, conspicuous posting or any other reasonable means as determined by the BOD." My assn puts out a quarterly newsletter that announces the board meetings and this is sufficient to be IAW state law. Some assn's post notices in a local newspaper. (Ref ARS 33-1804)

There is no state law requiring financial statements be provided to the members periodically so this is not a requirement of the board, unless your gov. docs state otherwise. However, state law does give the members the right to view or request copies of the financial statements, or any other records of the assn. The assn has 10 business days to fulfill a request from a member and may charge a fee of not more than 15 cents per page. (Ref ARS 33-1805)

I was thinking the same thing myself. . .

On the other hand, is it possible that the board could not GET another loan? I mean, given the economic climate, there are many banks and lenders who are simply not making loans.

And I'm not sure what "equity" the association could provide? Certainly not against the common elements?

Just thinking out loud.

Robert, that's what the OP last posted.
Some HOAs do not allow investors/speculators to be on the board. This Pres. owns 5 units and the loan occured 7 months ago according to Deanne. Now it's too late to change the course of this loan unless the HOA borrows from a traditional lender as I think someone has suggested. Nevertheless, IMO, the miscalculation of the special assessment should have been disclosed to the membership.

I'd be curious to know if the roofing project was already started when the shortfall was realized. Was this $$$ needed immediately or could the board have waited and tried for another special assessment? Perhaps the board felt the members would not pass another special assessment. Frankly, there are alot of unanswered questions here.

My first thought is that the member who lent the money should not have participated in the debate and vote to borrow the money from his/herself. That should take care of the potential conflict of interest/self dealing.

Aside from that, the Board should certainly have kept the community informed of what was happening. Consider that if they didn't borrow the money then they would have had to collect it up front in a single assessment.

As for no funds in the reserve, that is why the money had to be borrowed in the first place.

$2000 per unit was collected in February of 2007 to cover the roof. What is in question now is was the assessement collected used for something else or was the cost of the roof more than bid? We would not be having this discussion if we had communication from the board.