Borrowing money by the Board without presenting it to general membership

Started by KenB3 • 6 replies • 1799 views

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KenB3 (Georgia)
Posts: 1

Posted:

I have a empty lot in a gated community in northern Georgia. Within the past year, the Association's Board of Directors arbitrarily took out a huge loan of several millions of dollars to purchase a golf course within the boundaries of the gated community. Of over 500 lots, both empty and with homes, there are perhaps only around 50 full time residents. Unfortunately, all seven Board members are full time residents. When the golf course was purchased, the Board increased each lot owner's monthly dues with the understanding that all owners now had unlimited play on the course at no additional cost. The huge loan was made without a general membership vote and technically some 500 plus owners are paying the bills for the upkeep and play for the full time residents that make up about 10% of the general membership. I believe this action to borrow such a huge amount of money without a majority approval by the owners is both unethical and illegal. I would like some feedback if anyone knows of similar cases in any state especially Georgia.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Ken,

You may want to go back to the original plan that was submitted to your County to see if the golf course was included in the approval of the developement. There might be a chance that it is stated in those approvals that the course might be part of the developement by such and such a date. That the association has the obligation to purchase the course. Just a long shot but I have seen that happen before.

I also have seen a course go belly-up and the HOA surrounding it purchased it to prevent developement of homes around the exhisting homes but that would need a vote of the members. 50 members living there would never finacially support the maintenance and expenses of a golf course so unless those 50 members are rich OR it is open to the public, there is some major cash flow needed to keep the couse going.

GlenL (Ohio)
Posts: 5,491

Posted:

Ken most likely the loan and purchase were legal (we can debate the ethics later) it all depends on what your CC&R's allow. You need to check your CC&R's for language allowing the BOD to enter into loans and to purchase property. For instance in our community the BOD does have the power to obtain a loan without the membership's approval but they cannot purchase real property without the member's approval. You need to check not only the Declarations but the Articles of Incorporation and the By-Laws too.

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JeanneK3 (Maryland)
Posts: 562

Posted:

Glen L is correct, you need to check your documents. In my association the board needs the approval of 51% of the homeowners before either borrowing money or doing a special assessment.
Jeanne

MicheleD (Kentucky)
Posts: 4,491

Posted:

In our HOA, the board can both enter into loans (no maximum ceiling cap) and buy real property, and enter a variety of other contracts without membership approval.

They cannot, however, increase any assessments, including create a special assessments, over a certain percentage of current assessment amount without a simply majority membership approval.

DennisT (Ohio)
Posts: 109

Posted:

We had a restriction that prohibited the board from spending money to make or acquire real enhancements to the association beyond $5,000 per year. In other words, the board was responsible for maintaining and repairing what was there. However if it wanted to add something like a swimming pool or a fancy playground it had to go to a vote of the general membership.

I would say that buying a golf course definitely meets the definition of acquiring a real enhancement to the association.

But again, it's going to come down to what your Decs and Bylaws say.

EllenS1 (Florida)
Posts: 1,148

Posted:

Ken,

What do your docs say about assessments? I live in a small townhome association and ours state assessments can be increased by 5% per year unless more is needed for landscaping. Anything other than this requires a meeting of all homeowners at a meeting for a special assessment where a certain percentage of owners vote.

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