Condominium Loans

What exactly is the power of the Association to borrow money. Does the association need to amend its declaration and by-laws? Is the power of a Board to borrow money inherent in its existence? If the association does not have property for collateral, what does a bank take for security for its loan? And how does an association repay its loan to the bank?

First, you must look at your governing documents, which include your Articles of Incorporation, and your Declaration and By-laws. Do any of these documents specifically mention the power to borrow money? Your documents may contain an express provision allowing permitting you to borrow money. Remember to check the Articles of Incorporation. Just a caveat: be sure to review the recorded documents, which may not be the same documents provided by the developer.

If your documents specifically grant the Board the authority or deny the Board the authority to borrow money, then you have your answer and the inquiry ends.

However, the documents may be silent on the issue of borrowing money. What then? Does the Board have to go through the burdensome and expensive process of amending the Declaration by a vote of the members? The answer is as you would expect: an unequivocal maybe.

Most condominium associations are not for profit corporations. This means that as a corporation, you have all the powers enumerated in your Articles of Incorporation.

The recorded Articles of Incorporation must state the corporation’s powers. Frequently, the provision states that the association has all the powers as set forth in Chapter 1702 of the Ohio Revised Code. Chapter 1702.12(f) provides that in carrying out the purposes as stated in its articles and subject to the limitations prescribed by law or in its articles, the corporation may do the following: “5. Borrow money and issue, sell, and pledge its notes, bonds and other evidence of indebtedness and secure any of its obligations by mortgage, pledge, or deed of trust, of all or any of its property, and guarantee or secure obligations of any persons.”

Therefore you must again examine the Articles or your Declaration and By-laws for an express limitation on the power to borrow money. Ohio Revised Code Chapter 5311, Ohio’s Condominium Act, contains no limitation on the ability of a condominium association to borrow money or secure any of its obligations by pledge. There is no prohibition or restriction on the authority or ability of a nonprofit corporation that happens to be a condominium association to borrow funds.
Finally, I reviewed Ohio case law to determine whether or not a court has made any determination with regard to the ability of a condominium association to borrow funds. There are no reported cases.

Each condominium is different and each set of governing documents must be carefully scrutinized in order to make a determination on the authority of a Board to borrow money without a vote of the unit owners. However, absent an express limitation, there is no restriction on the Board’s ability to borrow money.

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