So many of our buildings are approaching the 40 year mark,
requiring recertification in electrical and structural. Many
buildings are younger yet still need major repairs to the
concrete, balconies, pool decks and other portions of the common
elements. The board is going to need a lot of money. Assuming
you don’t have enough in reserves, how do you get it?
Of course, one way is to simply pass a special assessment. In
effect, that means that you will have all the money necessary to
pay for all the repairs, before the repairs are done. The
problem with a special assessment…………. Everyone has to come up
with a lot of money relatively quickly, if not immediately.
Some people simply don’t have it. If they don’t they face
possible foreclosure by the association.
What is certainly becoming the more common way of coming up with
money to make repairs to the common elements is for the
association to borrow the money from a bank. Rates are still
very low and money is very cheap right now. Typically, the bank
gives the association a line of credit for one year that the
association may draw upon to pay for the cost of repairs. After
one year, the funds borrowed from the line of credit are
converted to a term loan, usually anywhere from three to seven
There are of course many advantages to borrowing rather than
assessing. First and foremost, the owners need not come up with
their entire share of the special assessment immediately.
Instead, they get to pay off the bank loan over several years.
In addition, the board can establish payment schedules that
would allow the owners to have a choice of paying their share of
the loan off immediately and without interest. Or, the board
can allow the owners to pay off their share of the loan over
time, with interest.
Before signing for the loan, the bank will always ask
association’s counsel to review the governing documents and
write an “opinion of counsel” as to whether or not the
association has the right to borrow money. Under the Florida
not for profit statutes, the association has the right to
borrow. However, the governing documents should be read
carefully because sometimes it clearly states that the
association cannot borrow money without a vote of the community.
In terms of collateral, the association is not signing a
mortgage encumbering the common elements. Remember, the common
elements are owned by the owners and not the association.
Instead, the association will be signing a Collateral Assignment
of Lien Rights which authorizes the bank to demand the monthly
assessments directly from each unit owner, should the
association default in its payment obligations to the bank.
If you have any additional questions about how the process
works, give us a call.