Your HOA Took Out a $2M Loan in Your Name: What California Law Says You Can Do About It

Regular assessments are the monthly or quarterly dues you pay for ongoing HOA operations - management, landscaping, insurance, utilities, basic maintenance.

Special assessments are one-time charges for major projects that exceed what reserves can cover - roof replacement, building repairs, infrastructure upgrades, litigation settlements.

Under California Civil Code Section 5605, special assessments exceeding 5% of the annual budget generally require member approval. However, emergency assessments and certain repair assessments may be imposed by the board alone.

When a major project costs $2 million and there are 100 units, the per-unit cost is $20,000. Most homeowners can't pay $20,000 upfront. So the HOA has options:

• Pay-over-time assessments - Spread the cost over months/years through increased regular assessments
• HOA loan - The association borrows money and owners pay it back through assessments
• Individual owner financing - Each owner arranges their own financing (rare)

The loan approach is popular because:

• The project can start immediately (contractor gets paid)
• Owners pay manageable monthly amounts instead of huge lump sums
• Interest costs may be lower than individual financing
• The association guarantees payment, simplifying collection

Your share of a special assessment (and any associated loan) is typically based on your percentage interest in the common areas, as defined in your CC&Rs. This might be:

• Equal shares (1/100 if there are 100 units)
• Based on square footage (larger units pay more)
• Based on unit type (penthouses vs. studios)
• A combination of factors

Construction loans have unique features that create both flexibility and risk:

During the draw period (typically 12-24 months for large projects), the HOA requests money from the lender as construction progresses:

During the draw period, interest typically works like this:

• Interest accrues only on drawn amounts (not the full loan commitment)
• Many loans are "interest-only" during construction, with principal payments starting later
• The rate may be variable during construction, then convert to fixed
• Interest charges during construction add to the total project cost

A Pay-In-Full (PIF) option allows individual owners to pay their entire share of the assessment upfront, rather than paying monthly through the loan term. Benefits typically include:

• No interest charges - You pay your base share only, saving thousands over the loan term
• Clean title - No assessment lien or loan obligation attached to your unit
• Easier resale - Buyers prefer units without ongoing special assessment obligations
• Budget certainty - Your obligation is done; no monthly payments for years

California Civil Code Section 5650(b) provides that when an assessment is payable in installments, the owner has the right to pay the full amount at any time without penalty.

This means:

• The HOA cannot refuse a valid PIF payment
• No prepayment penalties can be charged to the owner
• The HOA must apply PIF payments to reduce the owner's obligation
• Once paid in full, the owner should not be assessed for ongoing loan payments

The timing of your PIF payment matters, especially with construction loans:

• Before project starts: You may get the lowest price, but you're paying before knowing final costs
• During construction: Some of your payment may reduce draws; some may be held until construction ends
• After construction: Final costs are known, but you may have already paid some monthly assessments

Ask these questions before making a PIF payment:

• What exactly is my PIF amount today?
• Will this amount change before the project ends?
• How will my PIF payment be applied to the loan?
• Will I get lender confirmation of the application?
• Am I exempt from all future loan-related assessments once I pay PIF?

When you pay $25,000 to "pay in full" your assessment share, you need proof it actually reduced your obligation. Internal HOA ledgers are not sufficient because:

• The HOA ledger might show "PIF received" but funds could sit in a holding account
• Management company records can be changed or manipulated
• Only the lender can confirm actual loan principal reduction
• If the HOA defaults, lender records determine what's owed

Proper lender verification includes:

• Lender letterhead - Document from the actual lending institution (Capital One, etc.)
• Date of application - When your payment was applied to the loan
• Amount applied - Dollar amount credited to principal
• Resulting balance - Loan balance after your payment
• Unit identification - Confirmation the payment is credited to your unit/share

When you make a PIF payment, request verification in writing:

• Include with your PIF payment a written request for lender confirmation
• Specify that you want documentation from the lender (not internal records)
• Set a deadline (e.g., "within 30 days of payment")
• State that acceptance of payment constitutes agreement to provide verification

If the HOA accepts your payment but refuses to provide lender verification, that's a major red flag. Consider:

• Sending a formal Civil Code Section 5200 records request for lender statements
• Demanding explanation in writing
• Consulting an attorney before the situation worsens

A well-managed construction loan has draws that match construction progress. But problems occur when:

• Draws exceed progress - 50% of funds drawn but only 30% of work complete
• Progress exceeds draws - Work is done but HOA hasn't drawn funds (cash flow issue?)
• Vague representations - "We'll calculate final amounts later" without current transparency

During active construction, request monthly updates on:

• Total loan commitment - Maximum available to draw
• Amount drawn to date - How much has actually been borrowed
• Construction percentage complete - Based on contractor reports and inspections
• Interest accrued - How much interest has been charged so far
• PIF payments received - Total collected from owners who paid in full
• Application of PIF funds - Were they used to reduce draws or held separately?

• "We'll true up at the end" - Delaying all accounting until project completion prevents oversight
• No lender statements provided - If they can't show you lender records, why not?
• Operating budget in deficit - Where is money going if assessments are being collected?
• Surplus from last year "spent" - On what? Without documentation?
• Multiple management layers - Management company, construction manager, and counsel all pointing fingers
• Delayed annual disclosures - Pushing budget/audit delivery until after draw activity ends

You paid $25,000 to "pay in full" your assessment. But:

• The HOA deposited it in the operating account, not applied to the loan
• It was used for other expenses (management fees, attorney fees, operating shortfalls)
• It's sitting in a "holding" account earning interest for the HOA
• The lender has no record of a principal reduction for your unit

Result: You paid $25,000 but still technically owe your share of the loan. The HOA says "our records show PIF" but the loan balance hasn't changed.

The HOA draws $1.5 million but only $1.2 million of work is complete. The extra $300,000:

• May be sitting in an account earning interest
• May have been used for non-construction expenses
• May have been paid to contractor as "advance" without adequate controls
• Is accruing interest that owners will ultimately pay

Without lender statements and contractor payment records, you can't verify what's happening with the money.

Property management companies are NOT licensed escrow holders or fiduciaries. They generally lack authority to:

• Hold owner-designated PIF payments in their own accounts
• Decide when/how to apply payments to loans
• Substitute their ledgers for bank/lender verification
• Block owner access to financial records

If management is "handling" your PIF payment rather than immediately applying it per your designation, that's a problem.

Construction projects frequently run over budget. When they do:

• Additional assessments may be required
• PIF owners may be asked to pay more (even though they "paid in full")
• Interest costs increase as the project extends
• The per-unit share may need recalculation

1. Get written PIF terms - Exact amount, what it covers, what happens if costs increase
2. Designate the payment in writing - "This payment is to be applied to reduce the [Lender Name] loan principal for Unit #XX"
3. Request lender verification commitment - "HOA agrees to provide lender confirmation within 30 days"
4. Get exemption from future assessments in writing - "Once PIF is applied, Unit #XX is exempt from all future loan-related assessments"
5. Keep copies of everything - Your check, the PIF agreement, all correspondence

1. Follow up in 30 days - Request lender verification if not received
2. Submit Civil Code Section 5200 request - For lender statements showing application
3. Document any refusal - In writing, with dates
4. Monitor monthly statements - Ensure you're not being charged loan assessments
5. Attend board meetings - Listen for financial discussions and ask questions

If the HOA accepts your PIF payment but won't provide lender verification:

1. Document everything - Written requests, responses (or non-responses), dates
2. Send formal records request - Under Civil Code Sections 5200-5210
3. Request IDR - Under Civil Code Section 5900 to resolve the dispute
4. Consult an attorney - You may need to escalate to protect your interests
5. Consider declaratory relief - Court action to compel verification and confirm your rights