Tag Archives: bonds

Homeowners Associations Use Bonds to Fund Improvements

As planned communities across the country enter their third or fourth decade in service, there’s a growing need among homeowners associations to finance major building and facilities improvements to maintain the safety, desirability and resale value of the homes in their communities.

A common problem

The traditional practice of financing major capital projects with large special assessments is often very unpopular with homeowners. Even essential projects that are favored by many community residents may be strongly opposed by some homeowners if a large special assessment is required. Managers of homeowners associations and their boards of directors often face a difficult dilemma – impose a special assessment and upset homeowners or neglect a major capital need.

Alternatively, financing major capital projects with bank loans can be prohibitively expensive for homeowners associations, due to the high interest rates and the relatively short repayment terms required by most banks.

Now however, just like large private corporations and most state and local governments, homeowners associations are realizing they too can use long-term bonds to finance large capital improvement projects.

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Waiver of Covenant Enforcement

 

Association boards must be vigilant to consistently enforce the association’s CCRs and bylaws.  Inconsistency or looking the other way can create a defense of waiver or estoppel for the errant homeowner to use against the association in court.  However, in Kneale v. Bonds 452 S.E.2d 840 (S.C. Ct. App. 1994), the South Carolina Court of Appeals held that [a] party’s waiver of the right to object to a minor violation of a covenant does not result in waiver of his right to object to a subsequent and more substantial violation.” 

In the Kneale case,  the Bonds submitted an application to extend their condo by 2,200 feet, which would extend the unit into the common elements of the Condo Association.  The Board approved the application, but several property owners brought suit against the Bonds seeking a temporary restraining order and to enjoin them from further construction.  In return, the

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