Long Term Borrowing to Fund Renovation Projects

Started by EileenS2 • 20 replies • 2745 views

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EileenS2 (Florida)
Posts: 10

Posted:

My community is a CIRA and the Board voted to take out an $8 million dollar loan to renovate our facilities and golf course. We did not obtain approval of the membership to take the loan since our legal counsel advised member approval was not required by the documents because the loan was not considered a "mortgage". My question is are there any other HOA's, particularily CIRA's, that have borrowed in this manner without putting the issue to a vote? Thanks.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Eileen,

What is a CIRA???

EileenS2 (Florida)
Posts: 10

Posted:

A CIRA is a Common Interest Realty Association which are more commmonly known as "bundled" communities. All residents must belong to the HOA which includes either a Class A (full) or Class B (social) membership in a full service golf & country club. The type of membership is specified in the deed and the membership transfers with the sale of the property (Condo's, Villas & Single Family Homes.

You might say that all property owners are members and all members must be property owners in the development. The only way a property owner can cease being a member is to sell their home. If a member/owner fails to pay their regular annual assessment, the HOA has lien rights to their home.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Eileen,

Thx for the definition of a CIRA. What you have described is an HOA (planned community of single family homes) and a Condo, townhome, etc.

Your answer lies within your gov docs and really has nothing to do with the type of community.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Eileen,
Mary is spot on, whatever you are, you have to be governed by your documents, and they could be different from one to the other. However state laws usually hold precedence over individual documents but all individual documents fall under state laws and if those state laws cover this loan business defer to state law, if state law does not apply which I doubt, then your documents must be followed. With an upscale HOA or what ever it is called such as yours, surely there must be association offices that could provide you authority for what they are doing. As a member you are entitled to this information and they should provide it to you. Take twenty other concerned neighbors with you when you go and they will listen and you can all work it out and be satisfied.

EileenS2 (Florida)
Posts: 10

Posted:

Thanks for the comments. I am on the BOD and the issue of vote or no vote was thoroughly researched both in the Florida statutes and the governing documents before the loan was approved. The documents were a bit unclear, but our legal counsel gave us the okay to take the loan without a vote. I disagreed with counsel's interpretation, but went with the majority opinion of the Board.

The renovation has been completed and is an overwhelming success. Even the members who opposed it are pleased with the results, although they still complain about the process.

I would feel better, however, knowning our HOA is not the only CIRA that borrowed millions of dollars without member approval. The reason the CIRA issue is relevant is because the members are personally liable for the debt that has been incurred in renovating the clubhouse and golf course. They may not, as is the case with a private country club, resign their membership. Their only alternative is to sell their home.

What's done is done, but I would like to find at least one other CIRA that acted as our Board did.

EileenS2 (Florida)
Posts: 10

Posted:

MaryA1 (Arizona)
Posts: 7,043

Posted:

Eileen,

As I stated earlier, the answer is in your gov docs. Your attorney must have read the CCRs before issuing his opinion that it was OK for the BOD to enter into this loan w/o member approval. Why do your question his expertise?

And also as stated earlier, the fact that you are a CIRA has no bearing on the issue. The members of any type HOA may be held liable if the assn fails to pay their debts.

EileenS2 (Florida)
Posts: 10

Posted:

Thanks again for your reply, but I am not asking for an opinion of whether our BOD made the right decision. All I am asking is whether there are any other CIRA's or non CIRA HOA's for that matter that borrowed millions of dollars to fund renovation projects (beyond routine maintenance) without a vote of the membership. I would appreciate hearing from any that did.

Thanks
Eileen

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Eileen,
I think most hear what you are saying and I think are hesitant about how to reply if it has happened to them. I am not sure we are talking HOA governance in total. I think when you couple allethe features, entities, property, personnel, etc, etc, there is no documents in a standard HOA entity that would cover what you are asking. Too wide of a gap between an HOA and where you sit. We are talking about management to handle private business for one thing, and my specific dpocuments forbid the board to engage in private business. And condidering the scope of your association demands tha control of the vatiables will be wide and varied from one CIRA to the other. I also believe that your documents must allow action of this type. Maybe your best bet would contact your States Attorneys office or your local State Representative and seek direction. I also find it odd that money of this magnitude is placed in the hands of a volunteer board.

I have no real answer for you other than what you present may not be the big picture.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Eileen,

Why? What good is it going to do you to know whether or not other HOAs have borrowed large sums of money w/o a vote of the membership? Perhaps their docs allowed it the same as yours do. If you're just looking for "ammo" to hit your board with, it won't work -- they didn't do anything wrong. I suggest you just move on.

EileenS2 (Florida)
Posts: 10

Posted:

Mary

I cannot understand why you are so hostile. Why would I be seeking "ammo" to use against my Board? I am on the Board and was Treasurer at the time the loan was taken and actually signed the loan documents. All I was trying to find out is if what our HOA did had been done by others. Knowing that other HOA's had taken large loans without approval of the membership would have made me somewhat more comfortable with the decision that we made. That's all I was trying to do.

GeraldT4
Posts: 1,022

Posted:

Eileen,

How is the 8 million dollars being collected? Are there any limitations upon the Board for special assessments without the approval of the HOA members?

EileenS2 (Florida)
Posts: 10

Posted:

Gerald

The Board was very careful to include the amount necessary to service the loan in the annual operating budget. We bill members for their portion of the regular member assessment on their monthly bill, but do not itemize the amounts allocated to cover operating expenses, loan repayment or reserve contributions. Members may obtain that information by requesting a copy of the annual budget or the monthly financial reports.

Our documents do require approval of the membership for special assessments or if the borrowing is a "mortgage." In the case of a mortgage, however, the documents prohibit granting lien rights to the lender for the common property which includes the club house & golf course.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Eileen,

SOrry, I didn't mean to appear to be hostile. But, honestly, I really don't know what difference it makes whether other assns have done this or not. All that needs to make you comfortable is knowing that the board acted within the guidelines of your gov docs. That is the only point I've been trying to get across to you. By you wanting to know what other assns have done only led me to believe you had an ulterior motive. Sorry, I was wrong about that!

GeraldT4
Posts: 1,022

Posted:

EileenS2 - Big picture is that the renovation project was not budgeted previously in a deferred maintenance, capital improvement, or reserve fund. How many homes in your association that will cover the 8 million dollars?

EileenS2 (Florida)
Posts: 10

Posted:

Gerald

We have about 850 Class A and Class B members. Our reserves were not nearly enough to fund the renovation activities.

GeraldT4
Posts: 1,022

Posted:

Eileen - That equates to $9,412.00 per owner that needs to be collected. What's the length of the loan? Does the 8 million include interest? Not only will you have to increase the budget to cover the loan payments but you should increase the budget to cover the fact that future renovations, capital replacement projects, and reserve fund items are covered.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Eileen,
Google Common Interest Realty Association.

There is a lot of stuff listed under this and if you have not looked at it, you might find some example of what you seek. Check any links if relevant articles, seems to be a lot of stuff there.

EileenS2 (Florida)
Posts: 10

Posted:

Gerald

It's a 15 year loan and the annual budget has been increased to include principal and interest.

EileenS2 (Florida)
Posts: 10

Posted:

Gerald

Forgot to mention, we also still include a reserve contribution in the budget as well for future maintenance and other capital expenditures.

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