D.K. from Broward County, Florida writes:
Dear Mister Condo,
Our Florida condominium association ran out of funds, did not keep correct reserves, members were never requested to waive the required reserves. The Association could not get a loan from a Florida chartered bank. The board did find a bank that one of the Directors had done a lot of business with in Georgia. The loan is for three million dollars, for ten years, to do renovations on the building. Because the loan is out of state, the association is not protected under Florida law. Since the bank is in Georgia and is not protected by FDIC, it is protected by the state of Georgia. Is this allowed? Thank you.
Mister Condo replies:
D.K., please not that I am not an expert on interstate banking but I must say I can’t think of any reason this wouldn’t be allowed. The risk is on the part of the bank, not the association. As long as the Board followed any protocols outlined in the governance documents regarding taking out a loan, I don’t see where anything foul has been done with regards to the loan. Your condominium association is a not for profit business. The Board needed a business loan. The bank assessed your association and decided it was a good business risk. That’s a business to business loan and they are quite typical. As for the previous financial management of your association, that is another matter. Keeping common fees artificially low by not making required contributions to the Reserve Fund is just bad business. It puts every member of the association at jeopardy of special assessment and/or risk of deferred maintenance which leads to decrepit buildings and, eventually, uninhabitable homes. I hope that the new Board gets the association back on sound financial footing. I would thank the Board member who came through with the bank loan for the association. He may have found the only viable solution for your association. All the best!