By: Barbara G. Hager
Many older associations are finding they need to borrow money for major upgrade or replacement projects, such as for roofs, windows, and paving. The Board of Directors will usually start this by speaking with a banker, which is the logical first step. However, problems may occur if a unit owner vote is taken on a loan without first contacting your attorneys, to be sure the statutory requirements regarding loans are followed.
Before the vote, however, we recommend that the Association hold an informational meeting with the unit owners. The Board, legal counsel, a bank representative, and the chosen vendor all will attend to address questions about the project and loan from unit owners. In our experience this meeting is very important and goes a long way toward encouraging unit owner support of the project.
When an association takes a loan, the bank will request a legal opinion from your counsel. In that opinion we must certify that the Association followed the state statutes regarding voting on the loan, and also followed their own Declaration, Bylaws and Rules. For this reason, we need to be involved early in the process, most definitely before notices are sent out to unit owners to vote on the loan. We will also send you an outline of the entire process. This will help everything run smoothly and assure the Association follows proper legal procedures.
The state statutes require a very specific notice and other documents to be sent out with the notice to unit owners regarding the vote for the loan. That notice must include, among other things, a description of the loan terms and a detailed listing of how much each unit would be paying for the loan each month. If the Board decides to allow a pre-payment option, that must be in the notice papers as well.
At closing, we review all the loan documents from the bank and review the loan terms and conditions with you and each document that must be signed at closing.
Failure to follow the specific statutory requirements will delay the closing and may necessitate additional notices and meetings, increasing the costs to the Association.
Please do not rush ahead to a unit owner vote until you speak with us first!