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DOES THE RIGHT TO BORROW MONEY GIVE BOARDS THE
RIGHT TO BUY ANYTHING THEY WANT?
By
Jan Bergemann
Published
November 8, 2013
Most governing documents give
boards the right to borrow money. I think that right was
established in order to give board members the possibility to
pay for repairs and maintenance in case of emergencies like
hurricane damages etc. – things that were not necessarily
foreseeable. In my opinion these rights were granted to the
board in order to avoid having to levy special assessments that
would get some of the owners in financial trouble.
But it gets in my opinion
outright ridiculous if board members and even association
attorneys interpret the right to borrow money from the bank to
mean that they can buy anything they ever want – including golf
courses.
I think using borrowed money
for such a purpose is a clear breach of fiduciary duty.
As much as I can understand the
financial intention of the attorney – it sure will create a law
suit -- I think that giving such an interpretation borders on
malpractice. But it’s pretty obvious that some specialized
association attorneys don’t mind handing down interpretations of
the governing documents that will definitely increase the
billing hours!
Even if the governing documents
give boards the right to borrow money, the right should only be
used in absolute emergencies – and only if it really benefits
the owners – and only for repairs or needed maintenance, not for
the purchase of more costly liabilities.
Never forget: The repayment of
a loan taken out many years ago by a board seriously decreases
the property values of the single owners.
If your board is planning on
taking out a loan for some sort of nonsense serving their
private agenda of some board members make sure that you quickly
remove such board members from office before your property
values take a big dump!
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