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How does a board respond to a shareholder who takes out a $318,000 home equity loan in an HDFC?

New York, NY |

A previous board approved a construction loan for a shareholder in an HFDC, as per the proprietary lease. The shareholder previously paid $250 for her share certificate. The so-called construction loan was for $318,000. The shareholder immediately paid $17,000 in arrears. She put in new floors and renovated her bathroom, at a cost of $10,000 to $15,000 at most. She is now writing off from federal income taxes $28,777 in interest annually, on a base income of about 32k, all of which comes from a sate pension. She is 51. This loan is obviously a home equity loan and, therefore, a violation of the proprietary lease. What does the new board do? Can it terminate her proprietary lease and evict her? Force her to sell?

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Attorney answers 1


I don't agree that this is so obviously a home equity loan. Further, the previous board approved the loan. The shareholder was entitled to rely on the approval by the previous board. It looks to me like the new board doesn't like this shareholder and wants her out. As a practical matter, unless this shareholder falls behind in her maintenance payments or other financial obligations, I doubt that the Board can succeed in terminating her proprietary lease or evicting her. And why would the Board want to do so?

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