Loading

Loans to HOA

Search with Yahoo

SBA LOANS

Q. 
If our homeowner association in Los Angeles accepts a prepayment from a homeowner on an SBA loan, is the association required to use the proceeds of the prepayment to make a principal repayment on the SBA loan?

A. 
No. While it may be prudent to do so, it is not required by law and the board may have a good business reason to apply the funds elsewhere. Top


PREPAYMENT OF SBA LOANS

Q. 
I own a property management company that manages two condominium associations that obtained Small Business Administration (SBA) loans shortly after the 1994 Northridge Earthquake.  Can the associations prevent individual owners from prepaying their portion of the loans?  The SBA will not permit the association to reamortize the loan if it is prepaid.

A. 
The association cannot prohibit a prepayment by a member.  The amount owed is based on a special assessment which can always be prepaid. Top


LOANS AVAILABLE TO ASSOCIATIONS

Q. 
Our homeowners association is twenty-one years old. We need to upgrade our common areas but do not have the funds to do so. Is it possible for an association to borrow funds for the purpose of making improvements?

A. 
Absolutely. Your association attorney, accountant or management company should be able to recommend various sources for HOA loans. These loans are made by certain commercial banks and private investors/pension plans.

HOA loans are made directly to associations and are secured by an assignment of a special assessment. Generally, the proceeds can be used for improvements, correcting defective construction, litigation and establishing reserves. The loans are typically made for terms of two to seven years. Top


BORROWING FUNDS BY HOA

Q. 
Our HOA is intending to borrow funds to upgrade our property in Van Nuys. Most of the owners are happy about it, but would like to know if we can deduct the interest on the loan.

A. 
The individual owners may not deduct the interest paid on the loan. The HOA is the borrower and will pay any interest.Top


BOARD REFUSES TO REPIPE

Q. 
Our condominium building in Los Angeles has old galvanized pipes that have been leaking for several years. The board makes repairs, but has refused to repipe the building because our reserves are inadequate. What is their legal duty?

A. 
The board should borrow the funds to repipe the building if possible. If a loan is not available, the board should immediately begin the process of increasing assessments so the work can be done at the earliest possible time.

Given that the board has knowledge of the deteriorating pipes, the association will probably be liable for the total cost of all repairs resulting for future leaks. Repiping will cut off the association's liability.  Top







Permission to reprint our HOA Questions and Answers is granted provided Michael T. Chulak & Associates (MTCLaw.com) is credited as the source.




 



All contents ©2017 HOAQandA.com. All rights reserved.