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How does your association qualify for a loan? You will find that banks take a variety of approaches to financing as each has different policies and skills. A bank’s greatest focus will be on determining if the condominium complex is managed well. And then, can the loan be repaid without straining the capacity of the association and its unit owners? Banks are looking for stability and consistent cash flow in the associations that they will finance.
When should you get started? Get started right now. Most associations are in their budget planning period in October and November. Decide which projects you would like to start in the spring and plug those projects into the budget now being developed. It will take an amazing amount of time for you to interview contractors, obtain the appropriate unit owner approvals and go through the countless hours of debate. Compared to these steps, processing a bank loan application is quick and simple.
However, the first thing that you may wish to do is contact your association’s legal counsel to determine if there are any legal obstacles. Associations might need to updated their declarations since may not have a legal capability to borrow or assign their common charge assessments as loan collateral. Also, each set of declarations includes unique steps that empower the Board to enter into a financing agreement and encumber association assets. You need to understand the process that is required from the very beginning in order to avoid surprises or delays later on.
The application process requires submitting information on the project, the association’s financial history, details about the association and a plan on how the loan will be repaid. Banks are accustomed to receiving high-quality financial information. Offering only tax returns may be insufficient and additional supporting material may be required. CPA-prepared review class or audited financial statements will strengthen your application. Make available current year budgets with year-to-date actual results.
A budget proposal reflecting the normal needs of the community and support for the proposed debt service is necessary. Pay close attention to the collection record of your monthly assessments. If these charges show an inappropriate number of delinquent units or frequent charge-offs, this is a red flag. The existing cash flow may not be stable and an increase in common charges to support the debt may not be practical. The ratio of non-occupant owners may be a critical factor in a bank’s perception of the association’s credit worthiness. These owners may have an entirely different set of motivations and commitment to the community. Unless all other issues of prudently managing the complex are in very good order, a high ratio can make it difficult to obtain financing.
The bank may also wish to look at the minutes of recent Board meetings. The minutes can indicate broad support for the project or general upheaval in the community. The bank is, once again, looking for a complex that is stable and working towards its collective best interest. The tenure of each of the Board members may also indicate stability in the association’s leadership. A professional life cycle analysis of common elements has hopefully been prepared and its recommendations implemented. If not, some form of plan for routine capital maintenance should exist. If there is not forward thinking on dealing with the aging community, a bank will be very concerned about what future cash strains the unit owners may come under. Insurance coverage is also an important matter. The bank will be looking at your policy to determine if there is prudent coverage of risks. Rapidly increasing insurance premiums are a signal that the complex may not be well maintained and frequent or large claims are resulting.
Managing an association is complex and requires sophisticated skills. The association should have a licensed and professionally certified manager who keeps current his or her education through Community Association Institute continuing education courses.
The structure of the loan is important. Keep in mind that if you borrow money the cost of your project has gone up. Keep the term of the loan as short as possible. Loans typically are not available for longer than seven years. Exceptions do exist, but just because a bank may be willing to go the longer term, avoid considering it. Be careful of what you ask for, you just may get it! The added interest will make the project more expensive than the pain of a slightly higher monthly payment on a shorter term. Most importantly, it is likely that you have raised your common charges to support the debt servicing need. Recognize that your complex is continuing to age and other extensive projects will always need to be addressed. You want that debt payment gone before the next large project shows up. Otherwise, the assessment cost of the new project is going to compound on top of the project you had financed. Not only is this dilemma straining, but you could find the high assessments depressing your property values.
If you can negotiate the process, financing for associations is available. The terms and conditions are somewhat flexible as each association is unique. A skilled lender can structure a productive tool for your association in conjunction with the rest of your professional team. The process can seem confusing. But you can get it done and your association will be better for the upgrades that you have comfortably facilitated.
HOALendingSolutions.com has made financing for community association capital maintenance needs easily accessible. Financial institutions that are truly skilled in serving this unique industry are particularly flexible to the differing needs of each community. Not only does each association have a unique culture but the projects all need to be approached in a tailor made fashion to suit what they desire to have accomplished. The financing available is low cost because the transactions are acknowledged to be of low risk and the associations often provide the institutions with deposits that allow for buying down the interest rate or loan fees.
The one aspect that permeates the vast majority of all communities is the handling of financial affairs. However, a very important responsibility has been broken in most communities. I know this to be true by virtue of years of experience as a lender financing communities throughout the country and involvement with the Community Association’s Institute. As well, interacting with professional Reserve Study professionals that reflect most associations are typically not more than 20% funded. That is, Reserve Studies indicate that a certain level of reserves are needed to support expired common elements but only 20% of that specified funding level has actually been accumulated.
The reason is also very consistent. No one wants to spend any money. A culture of “keep monthly association fees minimal” exists almost universally. Now, I am not a spendthrift. But, I have witnessed nothing but adverse effects to the ostrich head in the sand mentality. The reality is simply this: a community association regardless of size is a very complicated miniature town. The buildings and infrastructure are a sophisticated system of structural materials that is constantly in a state of deterioration and its components are becoming obsolete.
Because of the desire to keep the annual budget low for the sheer sake of it, there is typically a huge cost impact put upon the unit owners when a project needs to be addressed. Because of the under funding issue, the cost has typically been accomplished via large special assessments. The availability of obtaining an association loan has smoothed the impact.
Lending to a condominium association is not unlike lending to a municipality. No loan losses from condominium associations have been recorded by those banks with the most lending experience, most notably in Florida and California. There are special considerations when lending to a condominium association, several of which are discussed in this article.
Common Interest Realty Associations (routinely referred to as CIRAs) are legal entities formed from the organization of real estate property owners, generally as non-profit stock corporations. They proliferated in the 1960’s when condominiums became the most common form. This concept evolved into other forms of CIRA structures, including cooperatives, home owner associations (HOAs), and time shares. HOALendingSolutions.com services all of these types of CIRAs.
Items that can be funded are diverse. The unifying issue is that the funding be project-specific. Typical funding projects are such items as roof replacement, conversion to vinyl siding, driveway resurfacing, and central mechanical system upgrades. Associations have sought funding for expanding recreational facilities and purchasing adjacent land as a buffer for easement controls.
Whatever your financing needs are, you can be certain that HOALendingSolutions.com has experience with in your area of need. Contact us today to put our team of HOA lending experts to work for you.
That’s a question we get a lot. Believe it or not, lending to Condominium Associations and other common interest communities is our ONLY business. In the United States alone, Condominium Associations and other commonly owned properties make up more than 20% of the value of all residential real estate. There is more than 40 billion dollars spent annually on operating revenue. And the numbers are actually increasing. We think that is a market worth selling and servicing to.
The largest challenge facing this evolving industry is the lack of dedicated and specialized financial service professionals to service the growing demand for lending to Condominium Associations and other common interest communities. That is where we come in. We have seen the future of Condominium Associations like yours and we know that you will need lending solutions that are as unique as your community. Simply fill out our contact form and one of our experts will be in touch to discuss your Condominium Association’s Lending needs.
Arriving just in time for your aging common interest community is a fairly new option for condominium, cooperative, and timeshare boards – an option sure to smooth those riotous owners’ meetings. It is another arrow in your quiver to solve those nagging maintenance problems that just seem to come out of the woodwork (or are caused by it).
Whoops, we need a special assessment on top of the monthly assessment increase you just approved three months ago! So who could know that a sinkhole would form in the parking lot?
The option that more and more condominiums are discovering is the bank loan. This option is arriving on the condominium scene all across the country as more and more properties are facing the problems of aging. Many condominiums were built in the mid- to late- 1970s, making them 20+ years old. It is well past time for things to go bad. Or, framing the problem in terms of technology improvements and desires for aesthetic changes, there is a need for upgrades.
Another group of complexes that have a lot of work to do are those built in the mid- ‘80s. Unfortunately, it is not unusual for this group to suffer from poor workmanship or low-quality materials. These weaknesses are now resulting in premature problems.
Typically, condominium associations have been left to their own resources to support the cost of the repairs that are needed. The results have not been particularly favorable. The cost impact of these projects makes residents shudder. Often, the projects compound on top of themselves with the result being maintenance imprudently deferred.
One way out of this dilemma is planning properly for failing components and financing the current project(s) with a loan from HOALendingSolutions to smooth the impact on unit owners. By utilizing a loan, the cost of the project is spread over several years instead of a few months and most owners will appreciate this approach.
There is a third group of associations that can benefit from financing through HOALendingSolutions. These are complexes that are subject to land leases. These associations can purchase the lease and pay off the obligation long before the lease would ever mature in order to potentially save a large sum of money! Perhaps there is a need to purchase adjacent land as a buffer from undesirable development or to acquire a parcel that has been accessible only by easement. Of course, facility additions like building a clubhouse, pool, tennis court, etc., also make sense to finance.
Now, how do you find a bank that can provide the financing? Financing for condominium associations is relatively new. Changes in state statutes across the country have made this industry a viable and safe place for bank financing. However, most banks have little experience with this industry. The first chore is to find a financial partner that is comfortable and skilled with financing a condominium association. HOALendingSolutions is the logical choice to provide your financing as lending to HOAs, condominiums, cooperatives, timeshares and other common interest communities is our only business. Contact us today and put our team of lending experts to work for you.
Many traditional banks are ill-equipped to even accept a loan application from a community association, timeshare, homeowner’s association, or any other commonly owned interest group. While there are a variety of reasons this is true, the reality is that lending to a well-qualified community association, timeshare, homeowner’s association, or any other commonly owned interest group is a sound business practice that our firm has embraced for quite some time.
Qualifying for a community association, timeshare, homeowner’s association, or any other commonly owned interest group loan is really not so different from the way in which a business qualifies for a business loan. The community association, timeshare, homeowner’s association, or any other commonly owned interest group needs to show an ability to repay the loan and demonstrate that it has the credentials to seek the loan on behalf of its members. Other factors, such as creditworthiness, length of time incorporated, size and value of property, etc. go into the final determination but, for the most part, there is a lending solution for every community association, timeshare, homeowner’s association, or any other commonly owned interest group.
Are you ready to secure your community association, timeshare, homeowner’s association, or any other commonly owned interest group loan? Simply fill out our contact form and one of our experts will be in touch to discuss your community’s qualifications.
In recent years, many Condominium and Homeowner Associations have turned to financial institutions for loans to fulfill their duties to protect, enhance, and maintain their association’s common assets. The challenges faced by these associations is that many traditional banking institutions are not currently equipped to sell and service this specialized loan or line of credit request. Further, some Condominium and Homeowner Associations have found that their governing documents may prevent them from obtaining the simple financing they need.
To determine if Condominium and Homeowner Association Financing is right for you, you must first make sure that you have removed the barriers to successful loan negotiations with your lender. Our Condominium and Homeowner Association lending professionals are ready to talk with you about your Condominium and Homeowner Association Financing needs. Simply fill out our contact form and one of our experts will be in touch to discuss your community’s eligibility.
Finally, talking to the right professional makes all the difference in the world. Our professionals handle nothing but Condominium and Homeowner Association loans and lending solutions. You can rest assured that your inquiry will be treated politely and professionally by a knowledgeable expert who will efficiently assist you in turning your loan request into the needed capital for your association project.