Condo Media - November 2020 - 42

The Region

RHODE ISLAND

Association Loans

Statutory Power and Governing Documents
[by Mary-Joy Howes, Esq.]

A common question presented to
our office is whether the board may
procure a loan on behalf of the association without the approval of the
unit owners. In short, while the board
often can do this and other business
without the input of the owners, it
does not mean that it always should.
Pursuant to Section 3.02(14) of the
Rhode Island Condominium Act (3436.1.01 et seq.) ("The Act") a board has
the power to "Borrow funds including
the right to assign and/or pledge its
right to future income, including the
right to receive common expense assessments." This right is subject to any
limitations imposed by the declaration
of condominium.
While this statutory power to borrow funds is often incorporated into
an association's governing documents
without further restrictions, that is
not always the case. The bylaws must
be carefully reviewed to determine if
there are certain unit owner voting
and/or notice and meeting requirements necessary prior to the board

CONDOMEDIA November 2020

moving forward with obtaining an
association loan.
OTHER LOAN CONSIDERATIONS
Boards need to be aware that even in
the event no further requirements are
necessary to borrow funds outside
of the board's majority vote, the use
of the loan proceeds (e.g. for capital
improvement projects or otherwise)
or associated assessment/budgetary
changes due to the payment of the loan,
may require a vote of the owners. For
example, if the loan payment will result
in a special assessment to the owners,
this assessment may require owner
approval pursuant to the governing
documents or trigger special notice
and meeting requirements. Another
consideration is that most association
budgets - although not required to be
approved by the owners - are subject to
rejection (usually within 30 days) by a
majority of the unit owners. Rejection
of a budget that includes the loan's debt
service amount can be quite a crisis for
an association.

It is important to consult legal counsel
when beginning the process of obtaining an association loan. As part of the
process, lenders will require an opinion
letter from association counsel regarding
the authority of the association to enter
into the loan agreement and confirmation that any required process was followed correctly.
Even in situations where the governing
documents of a particular condominium
association do not require unit owner
approval or special notice when borrowing funds, it is always best to keep unit
owners well informed as to the decisions
being made and solicit unit owner input
where appropriate. Most unit owner/
association disputes stem from feelings
associated with a real or perceived lack of
transparency. I suggest boards "borrow"
that piece of advice before anything else.
n MARY-JOY HOWES, ESQ.
IS A PARTNER IN THE LAW FIRM
LOMBARDI LAW GROUP.

Condo Media - November 2020

Table of Contents for the Digital Edition of Condo Media - November 2020