HOA can take out a loan for park, but it won’t be easy

Q: I’ve read your columns on the Las Vegas Review-Journal. I wanted to ask you a question. My community is interested in purchasing a park that was previously owned by a private company. I know a special assessment can be requested, but the board was curious about obtaining a loan to soften the blow of a huge special assessment. Does a homeowners association even have the legal ability to seek a loan for land acquisition? if so, what do HOA loans look like in terms of repayment terms and collateral. Thank you for your time and feedback, it is much appreciated.

A: The short answer is yes to both purchasing a park and obtaining a loan but it is not easy. Your covenants should address two issues, annexation of property and obtaining loans. Generally speaking, there are specific procedures that must be followed as this is not an action that a board of directors can take on their own.

The first big issue is having homeowners who will support the board in purchasing the park and who are willing to pay for the purchase as well as other costs that will increase your operating budget and consequently increase your current assessment. You will need a certain percentage of approval from the homeowners to take this first step. If you did not finance the loan, you would need a special assessment to fund the purchase and again you would need approval from the homeowners — that percentage of approval as written in the covenants.

If you were to obtain a loan, again, you will need approval from the homeowners. In addition, in order to avoid anyone personally signing for the loan, you will need to provide some collateral for the bank. One example is to show that the homeowners have voted a special monthly assessment to fund the loan balance until it is paid off. (This could negatively impact the resales of your homes). Another example is where you have the bank “freeze” your assets in the same amount of money of the loan. For example. you have $ 500,000 in your account and the cost of the land was $ 300,000. The lender would protect their loan as any default in the part of the association would result in a forfeit of the $ 300,000.

Please note, that you would not be able to use any reserve fund money to either purchase the park or to use that money as collateral to the bank. I am sure you would have much to explain to the Nevada Real Estate Division, let alone your homeowners, if your association were to forfeit that $ 300,000.

Prior to your association taking any steps, you definitely will need to have a long discussion with your legal counsel, your accountant and your insurance agent.

Q: I have contacted our management company and our HOA on several occasions. I have never seen my neighborhood look so bad in the 27 years I have lived here.

Besides the neighborhood being unkempt, I have a neighbor that has piles of broken bricks, buckets, and trash piled on the side of his house in view of anyone passing, this is a violation of our policy, however ,when I email the HOA, they say that they are in the penalty phase, which now would be over two years. I do not believe them. I do not think they are doing what we pay them to do in keeping up with the HOA rules.

Can you please tell me who I would contact to file a complaint against them?

A: I look at this question from many different angles. The first question that comes to me is Why? Is there a financial problem with your association that they do not have the proper funds to operate the community? Is there a major delinquency issue? Is the board hesitant to increase assessments? During my years of managing associations, I have managed such a community and I can tell you that it is extremely frustrating, as management can only do so much with limited funds.

The next question comes down to servicing. Does the association have the proper contractors to maintain the community, be it landscape, street sweeping or grounds pick-up? If there is not a financial problem, then someone needs to better monitor the servicing of the contractors and if necessary to terminate them and find companies that will provide the proper service to the community.

Enforcement of the rules and regulations come next. Yes, fining a homeowner does not necessarily equate enforcement as the homeowner can ignore the fines, even if the association files a lien on their home. Your description leads me to believe that the association could be fining these homeowners based upon health, welfare and safety violations and the penalty for not complying with the association or not paying your fines can mean that foreclosure action can be taken by the association.

Also, there is state law which allows the association to take a very aggressive and proactive stance per Nevada Revised Statute 116.310312, which allows the association to enter the grounds of a unit to conduct certain maintenance or to remove or abate public nuisance. This law allows the association through proper notification under the law to maintain the exterior whether or not the home is occupied or not occupied. (subsection 2).

If your association were to maintain the property, or at least address the various conditions, the association has the right to seek reimbursement from the homeowner. If the homeowner does not reimburse the association, the association can foreclose on the homeowner as the maintenance expenses can becomes a maintenance superior lien on the home.

You asks who you can file a complaint with? Technically, the Ombudsman Office or the Nevada Real Estate Division does not have jurisdiction over this kind of problem. You could contact the Southern Nevada Health District and or the county code enforcement to see if they are willing to step in and place pressure on the homeowners who are violating health and safety codes, as well as placing pressure upon the association as to the condition of the common area.