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I live in a fairly large condo building. Our new board (2010) has opted to take out a loan for maintenance on our building. They plan to pay only the interest on this loan. There is no telling when and if there will be enough funds to pay back the principle. We have several units already in default for well over a year.
There was no vote by the residents as to if the loan was to be taken out (we have a line of credit that I am afraid our board thinks is cash in the bank for their use)...this was a board decision and the residents were informed only by a couple of words at a meeting (where there were few residents in attendance)
What is your opinion as to their loan payment plans - and the method (or lack of) that they made their determinations.
You already know this loan is a bad idea, but borrowing is something Boards can usually do [check your by-laws for possible constraints], with or without consulting all owners.
Given your apparently shaky finances--inadequate operating funds, coupled with units in default--I'd be particularly eager to learn how this loan is securitized. In this climate, it's hard to imagine many lenders being eager to give funds to a condo on the brink of trouble.
Get the facts on this loan.
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Buildings and building repairs/capital improvements all wear out over time. This is the real world basis for the accounting treatment called depreciation.
Take a roof for example, when the roof needs repair again (in the future) how is the condo going to pay for it? Not paying principal on the loan means that the condo could be relying on an increase in property values to increase borrowing power to get yet another loan. As we have seen in the last couple of years, real estate prices do not always go up. So, what will you do if you need to get the new loan the in the down portion of the real estate cycle? In my opinion, I would only rarely get a loan and not pay principal and this is not one of those cases.
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