Unfortunately, this happens often; a new homeowner association or condo association is formed, the developer sells off a majority of units then abandons the association with construction projects left to be completed and little money in the association's reserve account. A new association will rarely have the funds needed to complete these projects. The best alternative is for the HOA or association to take out a loan. These are specialized HOA loans that use the right to assess as collateral instead of property. Associations can apply for a loan or line of credit, which can be drawn down upon anytime.
Construction Defect Litigation
HOA Loans and Condo Association Loans can be used to fund a construction defect litigation. With the number of new homeowner associations (HOAs) that have been built over the past 10 years, the number of construction defect litigations have risen accordingly. Most HOAs and Condo Associations are not prepared for the costs involved in funding these law suits against developers and contractors. Construction defect litigations can often become expensive and prolonged. Rather than having a large HOA or condo association assessment, often the HOA is better off taking out a condo association loan to covers costs of the litigation, which can be repayed after the HOA is rewarded by either settlement or by the court system.