I belong to a New Jersey HOA of about 300 homeowners. Our board decided to obtain a $500,000 bank loan. It's been spending money like water and used up all the money that was designated for major repair work that was needed. Now, it has decided to take out a loan to do that work and any other things that it may think of. Is this legal. Aren't there some kind of requirements for doing this? I tried researching this in the Smith, Estis and Li publication "NJ Condominium & Community Association Law" and on sites dealing with HOA issues but I could find nothing related to this.
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1What do the bylaws state?– Ron BeyerCommented Oct 15, 2020 at 14:00
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2@RonBeyer Yes I should have checked there first. The bylaws do say that the board can "borrow and repay monies ... for proper maintenance and operation of the Condominium". But most of what they will likely spend it on is not maintenance and operation but improvements that they decided to do on their own without input from the community -- as they have spent all the other money.– John PankowiczCommented Oct 15, 2020 at 16:18
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Which country/state?– TrishCommented Oct 15, 2020 at 23:14
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U.S.A. - New Jersey– John PankowiczCommented Oct 16, 2020 at 1:28
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2 Answers
The authority of an HOA to take particular actions is governed by the Declarations of the association and its bylaws with only minimal statutory oversight.
It is possible that their actions, either in spending money raised for purposes other than those authorized for that money, spending money contrary to an approved HOA budget, or in obtaining loans for a purpose not authorized by the bylaws, violates those terms.
But there is no universal answer for all HOAs. Their actions need to be compared to the governing documents.
answered Oct 15, 2020 at 18:56
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That short phrase in the bylaws "can borrow and repay monies" seems to give the board a very easy way to bypass 2/3 membership approval for an assessment. The loan is essentially an assessment, only that it needs to be paid over future years. Even if it's not stated in the bylaws, isn't it inferred that any loan should be tied to specific purposes, as an assessment would? Commented Oct 16, 2020 at 17:46
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@JohnPankowicz Government finance law make a sharp distinction between regulation of borrowing and regulation of spending which are subject to separate laws. Such case law isn't directly applicable to this instance of contract interpretation but would be persuasive. Commented Oct 19, 2020 at 21:48
The board may do what the bylaws allow.
If the Board acts in excess of that authority, you can a) do nothing, or b) attempt to persuade them to change course, or c) consult with an attorney, and, if appropriate, file a lawsuit against the board to compel its obedience to the bylaws.
answered Oct 16, 2020 at 2:34
