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 years.

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.