The authority for associations to borrow money is generally found in their governing documents (bylaws or CC&Rs). It can also be found in Corp. Code §7140(i), which allows corporations to obtain bank loans subject to any limitations found in the governing documents.
Collateral for Bank Loans. Because real property that normally serves as collateral for bank loans is owned in common in condominium associations, banks require a different form of collateral. Banks require associations pledge their accounts receivable and/or a special assessment. Most often, it's a special assessment approved by the membership that serves as collateral. If, for some reason, the association defaults on the loan, the lender can step into the shoes of the association and pursue payment from the membership.
In Association's Name. Because the loan is in the association's name, it does not affect appear on or affect unit owner's credit.
Membership Approval. Check your documents before you apply for the loan. Membership approval of the special assessment (for a capital improvement, repairing the common areas, etc.) may not be enough. The ballot may also require approval authorizing the board to enter into a loan agreement with a bank. See borrowing checklist.
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