Debt of a housing association or housing cooperative

Chapters of the article

• Deciding on a loan
• Loan rules
• What if someone doesn’t want to go into debt?
• Defaulting on debts
• More articles from the series

Deciding on a loan

But what if a few members speak out against it? They agree to the renovation and the amount of investment, but may refuse to participate in the loan repayment. Perhaps out of concern that their property will be affected if the owners’ association defaults on the loan. General rules apply to the debt of the HOA and the cooperative , just as they apply to other decisions. Thus, it is sufficient if the proposal is approved by a majority of those present at a membership meeting or at a meeting if the statutes allow it.

Loan rules

Most loans to HOAs for the repair or reconstruction of a residential building can be obtained without collateral for a small amount. It is also possible to use only one or more housing units as collateral. In this case, however, the SVJ needs the written consent of the unit owner. In the event of a transfer of a condominium or the sale or gift of a unit, the owner will, in addition to the ownership rights, also receive the relevant part of the debt.

It is also important to know that the debts of the HOA are the responsibility of its members in proportion to the size of their share in the common parts of the building. This is unavoidable. They can only defend themselves by pledging the common property.

For the bank, this means that, thanks to this legal regulation, it is in the same position as if it had secured its loan with the guarantee of many solvent individuals. Thus, if the JVU stops repaying the loan for some reason, the bank can recover its claim directly from the individual owners as guarantors. This is the main reason why most banks do not require any collateral or security when lending to an HOA.

What if someone doesn’t want to go into debt?

In many cases, it has happened that some owners agreed to the renovation and investment, but did not want to participate in the repayment of the loan, precisely to avoid the legal liability for the debt. Their concern is understandable. But it is simply not possible to exempt some owners from this liability. One option is that, if the owner does not wish to share in the credit of the HOA, he can deposit his own funds in the amount of his share of the joint debt in a joint account of the HOA. While this option does not relieve the owner of his legal obligation as guarantor, it does partially mitigate the risk that the bank would immediately turn to him as guarantor in the event of a repayment problem.

At the owners’ meeting when approving the loan and making investments in the house, such owners who do not want to participate in the repayment of the loan shall have an item listed in the minutes of the resolution of that meeting where they will be precisely listed. At the same time, it will state that they will pay their share of the investment from their own account to the credit union and will thus not participate in the repayment of the loan. The minutes shall specify the unit number of the owner, the amount of his share of the investment and the date by which he must deposit the funds in the SVJ account. These deposited funds will then be used as the JVU’s own resources and the loan will therefore be reduced by this amount. However, it must be said that even such a measure does not exempt the owner from the statutory liability. Even so, it may happen that the bank, in the event of a problem, will recover the debts from these owners as well.

Non-payment of debts

When can a problem arise with non-payment of the debt of the HOA? In most cases, a situation arises where the HOA is unable to pay its debts if some owners simply do not pay their fees, which include the amount to cover the HOA debt. The HOA management must then start to recover the debts effectively as soon as possible. A verbal warning from a neighbour in the corridor is of little use. The HOA must choose the correct and official procedure and resolve everything in writing.

More articles from the series

We prepared this article for the Lidové noviny series “Law & Housing”. See also other articles from the series:

1. What to watch out for when buying a property
2. How to get a mortgage
3. What to check before buying a property
4. Who pays the property transfer tax and how?
5. What should be included in the property purchase contract
6. The most common mistakes when drafting a proposal to the Land Registry
7. Buying a property from a developer
8. Keeping the purchase price when buying a property
9. The difference between a condominium and a freehold
10. What is an annuity?
11. How to properly gift a property
12. What is the purpose of an easement or servitude?
13. Making a will and settling an estate
14. What is a collation
15. What shouldn’t be missing in a lease agreement
16. When rent increases can be made
17. Termination of the lease
18. Agreement to end the tenancy
19. How to draw up a work contract with a tradesman
20. Hidden defects and cancellation of a works contract
21. When do you need planning permission to renovate a property?
22. Home Rules
23. What does serving on a condominium board entail?
24. Why not underestimate the bylaws in a condominium
25. Common areas in a block of flats
26. What is involved in refurbishing a block of flats
27. Can a condominium or housing association go into debt?
28. How to renovate a house or cottage
29. What to watch out for when dealing with a construction “company”?
30. Building a house on a “green field”
31. How to remove land from the agricultural fund