Q: Our Board is concerned about the cost of clean-up and repairs if a major storm were to hit Southwest Florida this hurricane season or next. We do not have a tremendous buffer in our operating accounts for those expenses. Passing a special assessment after the damage does not seem like a great option because of the time involved and the uncertainty of collection. Do you have any suggestions for us?
A: We have seen several communities take out a line of credit with a lending institution to address this financial need. You are correct on the special assessment. Not only will that be an unpopular decision in the community, but it will take some time to raise the funds with an assessment and there will certainly be some owners who will not pay it. The association has the right and duty to manage, maintain and operate the common areas, and a loan is a proper way to meet this obligation under Florida law.
Many banks will consider making a loan or extending a line of credit to your association. The loan is primarily secured and collateralized by the assessments paid by your owners, and thus it is a relatively safe loan for the lender. Obviously it is better for your association to stay “debt free”, but it may not be a bad idea to have a line of credit available in the event cash is needed to perform emergency repairs or maintenance.