Unexpected legal disputes can create ripple effects across a HOA’s operations. When the board is considering borrowing funds, whether for repairs, capital projects or reserves, pending litigation can complicate the process. Lenders tend to be cautious and the board may face new hurdles.
Borrowing during or after a legal battle is not impossible, but it does come with extra steps and risks. If a HOA is dealing with a dispute, whether with a vendor, developer or unit owner, it is important to understand how that can impact its ability to secure financing.
Keep the process smooth
When an HOA is borrowing with a lawsuit looming or already in motion, here are some tips that can make the path less bumpy:
- Have all documents in order: Lenders may ask for more paperwork than usual. Be ready with the governing documents, meeting minutes, budgets and anything related to the dispute.
- Be transparent with lenders: Trying to hide litigation never ends well. Share what is relevant early on. A clear, honest picture may help lenders feel more at ease.
- Understand lender hesitation: Some banks may pause or back out when there is active litigation. Others may still proceed but with higher rates or shorter terms.
- Look into timing: If possible, consider borrowing before filing a claim or after a dispute is settled. The “in-between” stage often carries more uncertainty.
- Separate project needs from legal costs: Lenders may hesitate if it seems borrowed funds are going toward the dispute itself. Keep those budgets apart.
If a HOA board is facing this kind of situation, there are other options to explore, as the landscape can shift when disputes are involved. It helps to work with financial and legal professionals as they understand both sides of the issue.