As condominium, townhome and homeowners associations are getting older, the need for maintenance, repair and replacement of the buildings and other property of the association has increased. Lately, I have received a number of phone calls from clients inquiring about the procedures to fund improvements to the property.
My first response is — “Are there funds set aside in the association’s reserve account to fund the project?” As you may recall from a prior article, the board for a condominium association must fund a reasonable reserve account. If you live in a townhome or homeowners association which is not subject to the Illinois Condominium Property Act, however, the declaration may provide that the board establish a reserve account. Even if the declaration does not do so, it is a prudent board decision to set up this account.
Unfortunately, for a number of associations throughout Illinois, there are not enough funds in the reserve account to repair and/or replace the property. A number of board of directors serving throughout the late 1980’s and early 1990’s did not see the necessity to fund the reserve account and now current boards are stuck with the unpleasant task of raising funds to administer the affairs of the association. The following are options for those board members who want to take steps to raise money:
Increase the Budget
Whether you live in a condominium, townhome or homeowners association, if the owners pay assessments, it is necessary for the board to adopt a budget. If you reside on the board of a condominium association, the board members may set the budget at any amount. However, if the amount of the budget is greater than 15% of the previous year’s assessments, including any special assessment, the owners have the right to file a petition to reject the increase. This petition must be executed by owners having 20% of the total vote and must be submitted to the board within fourteen days from the date the board adopts the budget. If such a petition is submitted, the board must call a special meeting of the owners to vote on the budget. If a majority of all owners vote against the budget, it is rejected.
Although no one likes to mention these two words, sometimes a special assessment is inevitable. Again, the Illinois Condominium Property Act permits a condominium board of directors to enact a special assessment in any amount. However, if the special assessments exceeds 15% of the previous year’s regular and special assessments, then the owners also have the right to file a petition to reject the special assessment under the same procedure as set forth above. If the special assessment is to fund an emergency repair or replacement, the owners do not have the right to file a petition. An emergency is defined as an immediate danger to the structural integrity of the building or to the health, safety and welfare of the owners or their property. If you live in a townhome or homeowners association, the declaration generally will provide for the board’s power to levy a special assessment. Depending on the language in your association’s declaration, this assessment may require the approval of a certain percent of the unit owners.
Within the last eight years, loans for condominium, townhome and homeowners associations have become quite popular. Prior to this date, banks were reluctant to grant such loans because the banks saw the collateral as the units and they did not believe a second mortgage in most cases was sufficient collateral. In the past several years, a number of banks have decided to grant associations loans in exchange for a lien on the assessments.
If you live in a condominium association, unless your association’s declaration provides otherwise, the board can obtain a loan without the consent of the homeowners. In a townhome or homeowners association, you should consult your association’s declaration to determine whether the board has the right to obtain a loan and whether owner approval is required.
Although, the decision to raise assessments, special assessments or take out a loan is unpopular, board members are elected to make these tough decisions. If you are an owner, please remember that the board members have to put the interest of the association ahead of their own and keep the property in good repair at any reasonable cost.
Originally published in the Pioneer Press (June 2003).
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