HOA Ability to Borrow w/o a Community Vote

Our HOA is having a documents change vote shortly and one of the changes is to allow the Board to borrow up to $250,000 without a community vote. Anything higher than that would need a community vote. I would appreciate your thoughts on this.

Michelle,

I know that the amount seems huge--and it is. One of my condos borrowed over $400,000 after one of the hurricanes. Reserves and insurance did not cover the roofs of 40 buildings (with 12 units in each) to upgrade them into "hurricane proof" systems. Time will tell if they work.

Tim makes a good point with the total debt allowed. Without a cap you could conceivably structure a series of loans to fly below the radar. The other problem with putting hard dollar limits in is that after some time you'll have to revise it because a dollar won't buy as much. Granted this is a quarter million dollars and it'll be a long time before that's not worth much. I know of an association down the way from us that was built in the 60's and their late fee has been fixed at $5 per month and violations have been $10 since inception and nobody will vote to bring it in line with today's prices.

Our documents allowed loans subject to this:
The board is permitted to borrow up to 10% of the year's approved operating budget that was sent in January at any one time without approval. At no time could the total debt of the association exceed 25% of the year's approved operating budget without approval.

In the event of a catastrophe which exceeded the association's insurance limits the board could borrow up to 25% of the year's approved operating budget (per incident) without approval and this was not subject to a total debt ceiling.

Regardless of why the board took a loan, written notification to all unit owners was required within 21 days listing the reason, source of the loan, amount, interest rate, duration, payment terms and total cost of the financing.

You also have to square the loan limit with any limits on fee increases. Let's say we're talking about an association with 100 units just to make the math easy. We'll assume a $250,000 loan paid off over five years at a 6% interest rate which is about the going rate is for general purpose loans these days. The monthly payment is about $4,800, or $48 per unit per month. Is the board permitted to raise the monthly assessment by $48 a month without a vote? Wouldn't that be great, they go get a loan and some homeowner sues because it violates another provision of the documents restricting how much the fee can increase from year-to-year. Further, do you want the board to have the ability to cause such a fee increase, or maybe you want to allow it but only in certain circumstances?

You didn't provide the exact text of the proposed amendment, but I would be inclined to vote no on what seems to be a blank check. It's a large amount and you didn't mention any controls on what the board could obtain a loan for.