Obtaining a Bank Loan; Step-by-Step

With COVID-19 stay-at-home executive orders causing issues with employment and payment of assessments in some communities and with hurricane season quickly approaching, many associations may want to have a line of credit in place. This ensures they have the funds necessary to make emergency repairs if their area is hit so that repairs can begin immediately while they wait for insurance proceeds. One of the biggest concerns that we’ve had in assisting clients with loans is that boards tend not to discuss obtaining a loan with their attorney prior to executing a commitment letter and paying a non-refundable loan commitment fee.  This can be a serious (and expensive) misstep.

While your attorney generally cannot advise which banks have the best rates or lending programs, they can advise regarding which banks have the ability to work with condominiums, cooperatives, and homeowners’ associations, and create loan documents which comply with the statutes, often in the first draft.

Another vital reason to speak to your community association attorney at the outset is because some governing documents have restrictions on lending or require membership approval. The worst scenario to be in is to go to your attorney for the first time a week before closing and learn that a membership meeting is required to obtain the loan.  That type of meeting requires, at a minimum, fourteen calendar days’ notice to all unit owners.

What are the steps in obtaining a loan?

1. Discuss with your attorney to assure your governing documents do not provide roadblocks to obtaining a loan and to determine if a membership vote is required; then plan for this vote. Your attorney should be able to recommend banks that work well with community associations.
2. Go to the various lending institutions recommended to see which loan program best fits your community’s needs.
3. Once you select a bank, the board should approve the use of that bank at a properly noticed board meeting.
4. Paperwork is submitted to the bank so that it can determine your creditworthiness and eligibility for various financing options.
5. You will usually receive a term sheet or commitment letter from the bank outlining the general terms of the loan and requiring a non-refundable commitment fee.
6. Attorney reviews the term sheet or commitment sheet prior to execution to ensure that it complies with Florida law and is equitable in its terms. Revisions are negotiated with the bank.
7. Board approves the final term sheet or commitment letter (often revised by the attorneys), executes same and sends to the bank with the non-refundable fee.
8. Loan documents are sent to your attorney to review and analyze. (the best loan documents I’ve reviewed required less than one page of comments; the most difficult set required over twelve pages of comments; that is why it is good to get recommendations from your attorney at the beginning of the process).
9. To the extent necessary, the loan terms are negotiated.
10. A board meeting is held to approve the loan and all of the conditions and resolutions in the loan package.
11. The opinion of counsel letter is prepared by the law firm and sent to the bank with association approval.
12. The loan documents are signed by the authorized signatories.

If you are thinking about obtaining a loan, it is never too early to discuss the matter with legal counsel.