As one of a handful of Becker attorneys who assists condominiums, cooperatives, and homeowners associations in obtaining bank loans on a regular basis, I’ve noted a few mistakes that boards make when deciding to obtain a loan.
- Your governing documents. Chapter 617, Florida Statutes, provides that one of the powers of a not-for-profit corporation in the State of Florida is the power to borrow money. However, the statue has a caveat, which provides that this power exists, “unless otherwise provided in its articles of incorporation or bylaws”. Some documents only permit borrowing up to a certain dollar amount without membership approval. Other documents do not allow any borrowing without membership approval.
- Banks trying to save you money by using computer generated documents. The computer-generated documents I have reviewed to date were never actually constructed for not-for-profit corporations, so it is always recommended (at least until a set of computer-generated documents are created specifically for use by condominium, homeowners, and cooperative associations) that attorney-prepared documents (by the bank’s attorney) be used for all such loans. In my experience most lenders will not permit changes to computer-generated documents. Accordingly, there needs to be an interactive dialogue between the bank’s attorney and the association’s attorney to structure the appropriate loan documents.
- Selecting the right bank. There are a number of banks that provide loans to community associations in each area of the state and have individuals dedicated to association lending. You should always consult with your community association attorney PRIOR to engaging with banks. We are not suggesting that you not interview any and all bank(s), but the attorney you work with will likely have read documents from a number of these banks and can provide you some insight from these reviews.
- Remember that collateral for a condominium bank loan will almost never include:
- real property (the condominium building or the recreational lands);
- reserve funds or accounts (prohibited by statute without a membership vote);
- special assessments (unless specifically approved for repayment of the loan);
- insurance proceeds received in the aftermath of a casualty, as most governing documents provide that the insurance is for the benefit of the unit owners and their mortgagees.
If you are considering obtaining a loan for your condominium, cooperative, or homeowners association, contact your community association attorney and discuss this with them prior to approaching any banks as doing so may save you both time and money.
If you want to learn more about association borrowing, check out my webcast here.