Condo HOA wants to take out a loan - what reasonable alternatives can I propose?

Question

So the HOA for a condo I own is having an expensive project done. This is a small HOA (< 6 units) but technically still a Condominium.

Since not everyone is liquid enough to pay for the work, there are talks of taking out a loan. I'm of the opinion that I'd prefer to just pay my share off right away, and at least one other unit is in a similar position (they want to HELOC it, since it works out better for them). Other units are all-in on "the HOA gets a loan".

To me, there are two big problems with this:

1) I'd be getting penalized with interest when I can easily pay off the lump sum right now.

2) I don't want to cosign a loan and entangle my finances/credit with anyone, ever.

They insist that "it's the HOA getting the loan and not individuals, so it's protected", but like... that sounds wrong. If I were a bank giving a loan to an HOA, I'd have stipulations in there about taking away the building if the HOA defaults on payments. I can't imagine they wouldn't be getting financial statements from individuals, etc.

Some members of the HOA are adamant about doing it the "HOA gets a loan" way (e.g. "I'm close to retirement, I don't want to take out a HELOC"). To me, it seems that you won't make more on your savings than what you will lose on loan interest, so it seems kind of mathematically silly not to just get it paid off, unless you end up with zero emergency buffer...

Anyway... What alternatives can I propose that might work?

I've read there's a structure that looks like:

* HOA levies a special assessment, with a time limit (15-30 days) for a payoff.

* Those that pay it off within the time limit are off the hook.

* HOA gets a loan for the remainder, and only the non-paying units increase their HOA dues, or get hit with credit checks/collateral demands, or whatever else the loaning bank wants.

* Special assessment has legal provisions that protect the paying units in all scenarios (e.g. in case of a default, the bank is only allowed to go after the personal property of the non-paying units). I don't know... personal guarantees?

Does such a thing exist? It seems like it should, in a reasonable world. If it doesn't exist, because it's just considered a collective liability under the HOA, can there be provisions within the HOA to make it so, if someone else has to pick up the slack for loan payments, THEY get some kind of kickback from the non-paying units they covered for (e.g. at the very least, a high-rank lien)?

I'm really nervous about entangling finances with these folks. What would y'all do in this situation?

Denise Supplee · Answer

The structure you're referring to does exist, at least in principle. It’s called a Hybrid special assessment. The HOA levies an assessment, gives owners a window to pay in full, and then finances only the unpaid portion. Those who pay upfront avoid interest, loan fees, and credit exposure. The HOA still technically takes out a loan, but the obligation is tied only to the association, and repayments come from increased dues levied only on the non-paying units.However, not every lender will agree to those terms. Many require that all units contribute to repayment since the HOA, not individual units, is the borrower. Still, with the right legal structure and clear documentation - especially in a small HOA, it is possible to set up protections..like reimbursement clauses, subrogation rights, or liens. So that payers don’t end up subsidizing defaulters.

Ricardo R. · Answer

Hey David,

Yeah, that’s a tricky one — small HOAs and big repairs are a bad combo because there’s no real buffer between owners and the debt. You’re absolutely right to be cautious here.

Here’s the deal: when an HOA takes out a loan, even though it’s technically “the association” borrowing the money, every unit owner is still on the hook. The collateral is almost always the association’s right to collect dues — and if one or two owners default, the HOA can raise everyone else’s dues or issue new assessments to make payments. The bank won’t go after your personal credit directly, but you can still get stuck paying for someone else’s shortfall.

You’re thinking about it the right way with that special assessment structure — and yes, that absolutely exists. It’s pretty common in small associations. Usually it looks like this:

• The HOA votes on the total project cost and issues a special assessment.
• Each owner has the choice to pay their share in full within a set window (30–60 days).
• The HOA then takes out a loan only for the balance owed by owners who didn’t pay up front.
• The HOA services the loan with a temporary dues increase or separate “loan payment” line item for those units.

The HOA votes on the total project cost and issues a special assessment.

Each owner has the choice to pay their share in full within a set window (30–60 days).

The HOA then takes out a loan only for the balance owed by owners who didn’t pay up front.

The HOA services the loan with a temporary dues increase or separate “loan payment” line item for those units.

The key is that the loan obligation stays tied to the association, but the repayment burden can be allocated only to those who opted for financing. The loan terms have to be structured carefully so the lender knows what portion of dues are pledged to repayment — that’s why some lenders don’t love doing partial assessments, but it can be done.

If the others refuse that setup, one alternative you could propose is creating a “repayment agreement” clause in the minutes or bylaws that says any owner who covers another’s delinquency (directly or via HOA reserves) is reimbursed with interest, and the HOA places a lien on the delinquent owner’s unit for that amount. It’s not perfect, but it gives you some protection.

Bottom line — you’re not wrong to avoid cosigning on a collective loan, and if your HOA attorney is sharp, they can absolutely structure a dual-track solution so people who want to pay upfront can do so and avoid the financing drag.

If you want a reference point, tell the board to ask their lender about a “segmented special assessment loan” — that’s the term most banks use for this kind of split structure. It’s the fairest middle ground for situations like yours; David, a bit long but I really hope this helps you, I sent you a DM on BP... it's one of the reasons I do this, I hope you can assist. Thank you in advance.