Association Loans Explained

Feb 15, 2023 | Board of Directors, Elections, Rules Regulations

Q: The board of directors of my condominium association has stated they are considering major restoration projects soon and have stated that they are considering a loan from a bank to fund part the projects. While nothing has been decided, the board has mentioned that considering a loan to pay for the work. Does the board have to get approval from the members before taking out a loan? (W.G., via e-mail)

A: As with many things in community associations, it depends. Chapter 718 of the Florida Statutes, the Florida Condominium Act, does not specifically require membership approval to authorize borrowing, not does it generally grant that authority to the board. The only instance where borrowing is addressed is in Section 718.1265, dealing with the emergency powers of an association. That part of the statute states a membership vote is not required to authorize the association to borrow money when dealing with certain types of catastrophic events.

Most condominium associations are also not for profit corporations charted under Chapter 617 of the Florida Statutes. Section 617.0302(7) of that law authorizes corporations to borrow money and many condominium documents vest all lawful authority in the board, except where the documents specifically require a vote of the owners. Accordingly, whether your association must have a membership vote to authorize borrowing money would be controlled your condominium documents. In my experience, there is no general rule, some documents require approval and some documents do not.

In addition to the question of whether the board has the authority to borrow money, with or without a membership vote, it would also be necessary to determine whether the association has the authority to levy special assessments without a membership vote. While the board may have the authority to borrow money without membership approval, the board may have to have membership approval to levy a special assessment. Most banks will require a special assessment as collateral for the loan.

When borrowing money for construction projects, there are a number of other important issues that must be reviewed. These include verifying that the money will be used for proper “common expenses,” most often verifying that the work planned is an association (and not unit owner) responsibility under the documents. It also needs to be verified that if any “material alterations” are involved, owner approval is obtained as may be necessary.

There are several technical legal issues that must be addressed with association loans. These include what kind of collateral the lender is requiring and whether an owner vote may be required for that, such as pledging reserves. Other issues involve the legalities and procedures to be considered if the association wants to give the owners the option to pay up front and not share in the interest expense of a loan.

It is important to involve the association’s attorney early in the process to anticipate these issues and assist with closing the loan and attend to other requirements, such as an “opinion of counsel” required by some lenders as a loan condition.

Q: Our association’s United States flag was badly damaged during Hurricane Ian. What is the proper etiquette for disposing of the flag in a respectful manner? (F.S., via e-mail)

A: Sections 8(j)-(k), Title 4 of the United States Flag Code states that the United States “Old Glory” flag “…represents a living country and is itself considered a living thing.” When it is of a condition no longer appropriate for display, it should be destroyed in a dignified way, preferably by burning.

Many county government offices and Veterans of Foreign Wars (“VFW”) posts, as well as police stations and some national retailer locations, collect tattered, torn, damaged or faded United States flags. Once collected, various community partners such as American Legion posts, VFW posts, the Girl Scouts, and the Boy Scouts hold flag retirement ceremonies consistent with The American Legion’s resolution passed in 1937.

Originally posted on Written by Joseph E. Adams of Becker & Poliakoff, P.A.,