Associations easily can acquire loans
Q. I am treasurer of our condominium association. We are considering borrowing money to pay for common element maintenance, repair and replacement projects, and I have been asked to look into this. The only loans I am familiar with are mortgages. Because the association does not own any real estate to mortgage, what sort of security will the association have to provide the lender?
A. Homeowners are familiar with the mortgage recorded against their real estate that is provided as security to their lender for their home loan. Typically, a condominium, and many other types of associations, do not own any real estate against which a mortgage is recorded as collateral. That is not going to be a problem in securing a loan.
Associations have something far more liquid than real estate to pledge as collateral for a loan. Associations have cash in their bank accounts and cash-flow from assessments. The board can pledge the right of the association to future income from assessments or other sources, and this can be done without owner approval.
The bank's right to receive the collateral is only triggered if the association defaults on the loan. In that case, owners would start paying assessments to the association's lender. Otherwise, owners pay assessments to the association, as always. These are great loans for banks to make, as the default rate is extremely low.
Q. Many of the owners in our association live off-site. Some owners are better than others at providing the board with their off-site address. There are any number of formal notices the association issues to owners each year. If an owner does not provide the association with their off-site address, where is the association supposed to send these notices to these owners?
A. The typical provision of an association's declaration says something to the effect that all notices are to be sent to an owner at the address of their unit, unless the owner has designated another address, in writing, where notices are to be sent. If an owner has not designated another address, the association should issue all notices to the address of the owner's unit in the association.
An owner who does not provide their off-site address to the association does so at their own peril. The owner, even if they have mail forwarded, may not receive timely notification of time-sensitive association matters. The association should consider taking the appropriate action to permit notices to be issued to owners by way of email. Such a process will increase the likelihood that off-site owners will receive timely (or any) actual notice, and will save the association time "stuffing" envelopes and the expense of postage. Both can be considerable.
Q. Our association held its annual meeting of owners to elect members to the board. The new board then immediately gathered in private and decided who would serve as president, secretary and treasurer. The results of this closed-door gathering was announced to the owners in a newsletter. Can this board decision be made in private?
A. No. The election of the officers of the association (president, secretary, treasurer - and vice president, if applicable) must be conducted by the board at a duly called and held board meeting open to all owners. Some associations will schedule a board meeting to commence right after the annual meeting of the owners in order to elect officers. The covenants for some associations actually provide for this annual meeting of the board, in addition to its other meetings.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.