Bank Loans

BANK LOAN CHECKLIST

Associations sometimes need to borrow money for special projects. This can include capital improvements such as building fences where none existed before or making needed repairs where there are insufficient reserves to cover the cost. Following are issues that boards need to be aware of:

Application Fees. Some banks charge application fees, some do not. You should ask before you apply.

Bank Deposits. Banks frequently require associations move their operating and/or reserve funds to their bank as part of the loan approval terms.

Financial Statements. Associations must provide financial statements and disclose delinquencies. If your association has high delinquencies and/or failed to comply with statutory requirements for annual financial statements, it is unlikely you will be approved for a loan.

Good Standing. Associations must be in "good standing" with the Secretary of State before they can get a loan. That means filing income tax returns and paying taxes. Go online to check your status with the Secretary of State before initiating the application process.

Insurance. Make sure your association has insurance and that it complies with your CC&Rs. The bank will want to know. (see insurance menu)

Attorney Opinion Letter. Banks normally require and opinion letter from the association's attorney as part of the loan approval process. You should involve your attorney from the outset to advise the board about the approval process for the special assessment and to prepare the ballot to the membership. Your attorney must express an opinion to the bank about the association's authority to borrow. So as to avoid problems and delays, make sure everything is done properly.

Prepayment Penalties. Will the loan have prepayment penalties? Avoid them if you can. Also, the board may need to set a policy regarding prepayment by owners upon sale of their units.

For a list of banks that specialize in loaning to homeowners associations, see "Banks" in our Service Directory.

Updated by ADAMS KESSLER 10/5/2008