Private Loans from Co-op / Condo Reserves: Good Idea? Oh, no, no, no, no

The owners learned of the transaction and rebelled at the annual meeting. The two board members seeking reelection were nearly thrown out. When the insurgent candidates lost by fewer than five votes, the rebelling owners demanded to inspect all the ballots and accused the board of fixing the election. Some owners sued the association and the board members individually. The board members countersued and the cases were settled with an exchange of releases.

There is considerable anger, even two years later. 

Legal Lesson 

Two things. First, co-op and condo board members should learn that personal relationships cannot dictate management decisions in an association of homeowners. No matter how many precautions are taken and how favorable the loan terms might appear to the association, owners will never accept a board member using association assets for a personal business decision, even for a short-term period like this.

Second, years of excellent work were nearly undone by one unfortunate decision. Homeowner trust must be gradually won back. And some people decline to pass up a gratuitous cheap shot at condo and  co-op boards when they have a chance. The problem could have been averted simply by saying, "No" every time the transaction was proposed.

Some unit-owners will never forgive, and most will never forget.

James W. Glatthaar is a partner at Bleakley Platt & Schmidt.

Photo by Jennifer Wu

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