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THE PITFALLS OF BORROWING MONEY
By
Eric Glazer, Esq.
Published November 2, 2015
Two
weeks ago, we made it clear that Florida community associations
are allowed to borrow money absent a provision in the governing
documents that would expressly prohibit it. But, just because
you can borrow money doesn’t necessarily mean that you should.
Many associations have an open line of credit with a lending
institution. It’s almost like a credit card that you swear you
will never use unless a dreaded emergency comes along. We all
know what usually happens though. The credit card bill somehow,
some way gets maxed out because you didn’t just use it for
emergencies. In fact, you used if for everything else but an
emergency.
Over the years, I have seen associations get themselves into the
same problem. They take out a line of credit intending to use
it solely for repairs. Instead of just paying back the line of
credit , they keep it open and access the line of credit for
lots of other things, including the payment of the association’s
routine bills. Suddenly, the loan comes due and the funds to
pay it back aren’t there. A financial institution may certainly
extend the payment terms for the loan if the association now
commits to a more structured payment schedule. However, I have
also seen non institutional private lenders say they want their
money now because that’s when the association promised to pay it
back. That lender may now have the authority to start
collecting the association’s monthly assessments directly from
all of the owners because the association signed a document
allowing for same when it needed the money.
It’s no different than college kids taking out student loans and
instead of spending the money on education, it’s spent in Cancun
or South Beach. With interest, those vacations wind up costing
a fortune and they wind up paying for a vacation they took as a
college freshman when they are also about to become a
grand-parent. It works the same way in your community
associations. There are plenty of associations today who are
still paying for repairs made ten years ago because they
couldn’t resist attacking the open line of credit.
So
be careful. Having the ability to borrow money can certainly be
a necessary life saver, if you can religiously stick to the
repayment plan. It avoids the dreaded special assessment. If
you fail to pay it back however, you may be hit with a special
assessment that makes the one you originally tried to avoid look
small.
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About
HOA & Condo Blog
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Eric Glazer graduated from
the University of Miami School of Law in 1992 after
receiving a B.A. from NYU. He has practiced community
association law for more than 2
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decades and is the owner of Glazer
and Associates, P.A. a seven attorney law firm with offices in
Fort Lauderdale and Orlando and satellite offices in Naples,
Fort Myers and Tampa.
Since 2009, Eric has been the host
of Condo Craze and HOAs, a weekly one hour radio show that airs
at noon each Sunday on 850 WFTL.
See:
www.condocrazeandhoas.com.
He is the first attorney in the
State of Florida that designed a course that certifies
condominium residents as eligible to serve on a condominium
Board of Directors and has now certified more than 10,000
Floridians all across the state. He is certified as a Circuit
Court Mediator by The Florida Supreme Court and has mediated
dozens of disputes between associations and unit owners. Eric
also devotes significant time to advancing legislation in the
best interest of Florida community association members.
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